Cloud Stocks Down to Start 2022

Investors Souring on Cloud Stocks

Cloud software stocks continue to slump as concerns over rising interest rates are weighing on the tech sector. Over the past five years investors have enjoyed steady gains in cloud-computing services, with stocks posting some of the technology sector’s biggest advances. This was only helped by the pandemic, as businesses, schools, and government agencies alike moved towards remote work and collaboration.

Throughout the pandemic a number of software-as-a-service stocks posted over triple-digit gains. Video chat service Zoom (ZM), ecommerce vendor Shopify (SHOP), and esignature company DocuSign (DOCU) all posted significant revenue growth. The recent trends reflect the changing market, as cloud stocks as a whole are down 29% since November, which was their collective high-water mark.

Issues Facing Cloud Stocks Common Across Tech Sector

Last year’s gains illustrated the long-term growth potential in tech and cloud services given the changing trends and circumstances post-pandemic. Still, analysts say the tech sector faces present challenges that are hitting cloud software companies especially hard. Higher interest rates mean lower future cash flow, and many cloud software companies don’t yet turn a profit.

The Fed’s December meeting indicated the easy money policy in place since the start of the pandemic is likely to end soon. Changing interest rates tend to greatly impact high-growth software stocks. Last week’s 6% drop for the WisdomTree Cloud Computing Fund represented the second-steepest since COVID-19 first hit.

Dip in Tech and Cloud Stocks a Buying Opportunity for Many

Some industry watchers believe the downward trend on share prices for cloud software stocks and the tech sector in general may represent a potential buying opportunity. Analysts reiterate that despite the impact of interest rates, the fundamentals behind cloud computing remain the same.

Market watchers urge patience and long-position investment when it comes to cloud stocks. While the Nasdaq index has routinely whipped the Dow in recent years, the first week of the new year saw a reversal in the trend. Cloud stocks in particular contributed to the Nasdaq’s decline. The market is clearly reacting to the Fed’s signals that interest rates will soon rise.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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