It’s all about the cloud, collaboration and cybersecurity.
COVID-19 forced most companies and their workforces to work in non-traditional office environments. In a late-2020 PwC survey, 83% of the employer respondents said they considered the shift to remote work an “overwhelming” success. U.S. executives and employees envision post-pandemic hybrid workplaces where employees may split time between the office and locations of their own choosing.1
Remote work has important implications for investors’ portfolios. We’re finding investment opportunities in companies that exhibit improving business fundamentals and whose innovative technologies enable seamless remote working experiences.
Cloud computing allows corporate workforces to connect and collaborate from virtually anywhere. The cloud eliminates on-premises infrastructure management and enables employees to access applications remotely. This capability has not only helped improve productivity but allowed employees greater flexibility. Companies at the forefront of cloud infrastructure include Amazon, Microsoft and Google.
With Amazon Web Services (AWS), Amazon was the first company to offer an infrastructure-as-a-service (IaaS) platform, a precursor to modern cloud computing. AWS is the market leader, offering scale and flexibility along with its core e-commerce business.
Microsoft’s cloud computing services include Azure, which holds a strong second place in market share after AWS.
Google Cloud Platform (GCP) is a collection of public cloud computing services that specialize in consumer-scale applications (such as Spotify) and data analytics. Under new leadership, GCP has added capabilities that serve a broader range of enterprise customers.
Notably, Amazon, Microsoft and Google are huge companies whose diversified offerings beyond cloud services offer exposure to the business outcomes of the entire entity.
Collaboration tools promote teamwork by allowing employees to communicate in real time—at any time from any location. They also allow companies to create easily accessible centralized knowledge bases.
Key innovators in this space include Microsoft (Teams and SharePoint collaboration tools), Google (Meet video conferencing), Cisco (WebEx video conferencing) and Zoom Video Communications (teleconferencing and online chat services). In addition, Salesforce.com, another large cloud application vendor, recently acquired Slack Technologies (channel-based messaging platform), expanding the remote work capabilities of the Salesforce platform.
Of these firms, Zoom is more of a pure play company because of its single business focus. Pure play stocks typically have financials less complex than those of multiline businesses, but their narrower business focus may pose greater risks to investors because revenues rely on the company’s single-focus products and services consistently staying in favor with customers.
Security issues inherently increase as companies move operations to the cloud. A survey conducted by cybersecurity firm Malwarebytes found 20% of the companies surveyed had faced a security breach because of remote workers. Furthermore, 24% of them had incurred unexpected expenses to address a cybersecurity breach or malware attack following shelter-in-place orders.2 These findings help underscore the importance of identity and access management and endpoint security.
Identity and access management is the process for verifying a user’s identity and allowing access to specific areas of a company’s internal network. Endpoint security seeks to eliminate vulnerabilities in network devices, such as laptop computers and smartphones.
Market intelligence firm IDC has projected the global market for cloud security will reach $16.8 billion by 2027, growing at a compound annual growth rate (CAGR) of 13.3% over 2020-2027.3 Companies such as Cybersecurity firms Okta, Zscaler and CrowdStrike have been key beneficiaries of the pandemic-fueled shift to the cloud and remote work. Microsoft’s Azure Active Directory is a leader in identity and access management.
Cloud-based technologies play crucial roles in making remote work successful, which should reinforce business investment in developing more cloud-based tools and services. Although some observers expect the move to remote work to ease as the pandemic eases, we believe it’s a trend that’s here to stay. Furthermore, innovative companies supporting this trend likely offer investors attractive long-term performance potential.
1“It’s time to reimagine where and how work will get done,” PwC’s US Remote Work Survey, January 12, 2021.
2“Enterprises Beware: New Malwarebytes Report Reveals Massive Gaps in Cybersecurity as Employees Work at Home,” Malwarebytes Inc., August 20, 2020.
3“Global Cloud Security Market to Reach $16.8 Billion by 2027, ReportLiner.com, September 2020.
References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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