Google Miss Hits Cloud Computing ETFs

ETFs that focus on cloud software companies declined on Wednesday after Google parent Alphabet said it missed revenue-growth targets in its cloud-computing business.   

Even though Alphabet beat analysts’ overall earnings and revenue estimates for the third quarter, its stock price sank nearly 9% on Wednesday on the news that the company’s cloud-computing division didn't grow as much as expected.  

Revenue for the business was $8.41 billion in the third quarter, short of analysts’ estimates of $8.6 billion. The cloud-computing division's 22% revenue growth was slower than its 28% growth in the previous quarter.

ETFs With Cloud Exposure    

As Alphabet’s stock fell, cloud-computing ETFs that hold the stock also declined, although not as dramatically as the stock itself. The $605 million WisdomTree Cloud Computing ETF (WCLD) declined about 3.3% by midday Wednesday. Similarly, the $505 million Global X Cloud Computing ETF (CLOU) fell 3%, and the $40 million Fidelity Cloud Computing ETF (FCLD) dropped by about 1.4% by midday.

The declines have to do with “shifting sentiment,” according to etf.com analyst Sumit Roy. Alphabet’s stock is not a significant holding in many cloud funds. WCLD doesn’t hold the stock at all, and its weight in CLOU is only about 1.75%.  

Cloud-computing exchange-traded funds include software and hardware firms that help companies maintain remote server networks for their businesses. The cloud-computing units at Alphabet and Microsoft coalesce with the companies' efforts to dive into artificial intelligence. Despite the lofty visions for AI, the latest earnings news from Alphabet shows that huge growth projections can be difficult for companies to sustain.  

And the consensus among financial technology experts at the Money 20/20 conference in Las Vegas this week is that AI will need time to mature as a business infrastructure component—and beyond the buzz surrounding chatbot creator ChatGPT. 

Microsoft Boosted by Cloud  

While Google’s cloud-computing business showing is responsible for the stock’s plummet on Wednesday, Microsoft’s stock got a boost from its cloud business. Azure, the company's cloud business, had revenue growth of 29% for the third quarter, and Microsoft’s stock was up 3% late in the afternoon while the broader stock market was down.  

Contact Lucy Brewster at [email protected].