Investing in AI-Driven Demand for Cloud Computing

The future of AI may be up in the air, but it is far from uncertain. In recent months, ChatGPT has shown the world the ease and utility of AI-powered solutions. This groundswell of interest in AI will likely accelerate its development. 

Consider that a survey conducted by the Machine Intelligence Research Institute found that about half of the 352 experts surveyed believe there is a strong chance that AI will eventually reach human-level intelligence which is defined as the ability to accomplish every task better and more cheaply than human workers.

Where will this sprawling technology reside? The cloud. This is why data from Grand View Research forecasts that the global cloud computing market will expand at a compound annual growth rate of 15.7% from 2022 to 2030. This long-term growth represents an opportunity for investors to participate in the largest technological innovation in history.

Here, we offer a brief overview of cloud computing, how it will support the rapid growth of AI and how to invest in the technology that will power the 21st century.

What is Cloud Computing? 

Cloud computing is a method of storing, managing, and processing data through the use of networks of remote servers usually accessed over the Internet.

Currently, cloud services are expected to generate about $591 billion in revenue in 2023. The majority of this revenue will come from the three primary services that make up the bulk of cloud computing technology. Those three services are:

Software as a Service

SaaS is a software delivery model in which a software application is hosted by a third-party provider and made available to customers over the Internet eliminating the need for them to install and run the software on their own computers or servers. The provider is responsible for maintaining and updating the software, as well as handling any underlying infrastructure and security issues.

Portion of worldwide cloud spending: 34%

Platform as a Service

With PaaS the hardware and application-software are provided and managed by the cloud service provider. The customer develops their own software and apps. PaaS means that the provider offers a complete development environment, including tools, libraries, services, servers, storage, and networks. The provider also manages the underlying infrastructure.

Portion of worldwide cloud spending: 23%

Infrastructure as a Service

IaaS is a cloud computing service model in which a provider offers resources including virtual machines, storage, networks, and other infrastructure components that are typically required to build and run applications and services. Customers can access these resources on-demand and pay only for what they use, eliminating the need for them to invest in and maintain their own physical infrastructure.

Portion of worldwide cloud spending: 24%

The remaining components of cloud computing, representing the other 19% of the market, are cloud business process services (BPaaS), cloud management and security services, and desktop-as-a-service (DaaS).

How Does Cloud Computing Support AI? 

SaaS, PaaS, and IaaS all require substantial cloud computing technology. Therefore, as the demand for each of these services stacks up, the need for a broad and solid cloud computing foundation also rises. There are a few key areas in which cloud computing will support AI:

Affordable Scale

Cloud computing provides access to advanced hardware needed for the fast and efficient processing of large amounts of data common to AI systems. This allows businesses to take advantage of the newest hardware technologies without the considerable front-loaded expense and risk associated with equipment.

Increased Collaboration

Cloud computing allows collaboration and sharing of AI models and data across businesses, allowing data experts and AI engineers to work together and build on each other's work. This can lead to faster innovation and the development of better AI systems.

Predictive Analytics

Cloud computing provides the infrastructure and resources for processing and analyzing large data sets which underpin many AI applications such as predictive maintenance, customer behavior analysis, and fraud detection.

Machine Learning

Cloud computing provides the resources necessary for organizations to train and deploy machine learning models. These are essential for AI applications including recommendation engines, dynamic pricing, market research, and information extraction from lengthy documents and data. 

How to Invest in Cloud Computing

Making a long-term investment in cloud computing means gaining exposure to the North American region given that 40% of the market's growth will originate from this area in the coming years.

One option is the Fidelity Cloud Computing UCITS ETF which is designed to track the Fidelity Cloud Computing ESG Tilted Index NR - USD. Some of the top holdings include major players in the cloud computing space including SAP, Salesforce, ServiceNow, and Equinix. 

Importantly, about 77% of the 49 holdings are US companies which means the ETF is well positioned to capitalize on the expected growth coming from the North American market. Many of the holdings that make up the top 15% of the ETF including Hubspot, Zoom, and Snowflake are industry leaders in cloud computing technologies that enable the data analysis, communication, and aggregation that make AI functional in business.