Enterprise Solutions Tend To Be More Resilient

Rising interest rates, high inflation, and economic uncertainty have all had an impact on tech valuations, but not so much in enterprise software. According to CIOs, demand is stable as firms continue to realign themselves around cloud computing and data.

  • Despite the crash in technology stocks, companies such as International Business Machines, Hewlett Packard Enterprise (HPE), and Oracle have demonstrated resiliency
  • Since the beginning of the year, all three have beaten sliding market averages

Demand Remains Very Strong

Despite the return to a more "normal office life" and calls from major companies (also technology ones) to return to the office, spending on cloud solutions is increasing steadily.

  • According to Gartner, global spending on public cloud services is estimated to reach $494.7 billion this year, up 20.4% from the previous year
  • Many businesses are now even using several cloud services at the same time, giving them more options for storing data and executing apps
  • In April, when Amazon reported its first quarterly loss in seven years, the cloud was a pillar of strength for the corporation. The company's cloud-computing offering, Amazon Web Services, reported $18.4 billion in first-quarter sales, up 37% from the previous year while sales increased by 7% to $116.4 billion across the board

According to John-David Lovelock, a research vice president at Gartner, there is no meaningful opportunity to retract investment because CIOs are still interested in technology that helps their organisations chase revenue growth while decreasing or better controlling costs.

Still Cut In Half

Despite the steadiness of some larger players such as HPE and IBM, the total public cloud capitalisation has been cut in half, declining from $ 2.7T in November 2021 to around $ 1.4T in May 2022. Here is from the "State Of The Cloud" by Bessemer Venture Partners:

"When we compare the cloud economy in 2021 to 2022, we see two drastically different pictures. 2021 was one for the record books: the total public cloud market capitalization reached a peak of $2.7 trillion in November [...]"

"With inflation on the rise, interest rates climbing, and geopolitical uncertainty, 2022 was met by stormy conditions in the form of a dramatic market correction. The BVP Nasdaq Emerging Cloud Index slipped back to 2020 levels, dropping over 40% in value. (As of May 2022, the cumulative market capitalization of the public cloud is approximately $1.4 trillion)."

"However, despite this drop [...] this cohort of cloud companies still exhibits strong fundamentals (e.g., 41% average growth rate, 71% average gross margin, 45% average efficiency score.)" by Bessemer Venture Partners, State of the Cloud 2022

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by İsmail Enes Ayhan on Unsplash.