Smart Money Flocks to Cloud Stocks Despite Risks
The stock market in August is showing an interesting divergence. Mega-cap tech has cooled off from its highs, while institutional ownership of big cloud franchises continues to rise. A key indicator of this trend is Berkshire Hathaway's recent disclosure of a 48-million-share position in Alphabet.
Three stocks stand out in particular: Microsoft, Alphabet, and Amazon. Each of these companies has seen significant growth in their cloud businesses, with analyst enthusiasm running high. For example, Microsoft's commercial remaining performance obligations grew by 84% to $678 billion in the last quarter, while its Azure business crossed $100 billion in annual revenue.
The setup for each of these stocks is unusual: they are trading at reasonable multiples and are backed by strong data on cloud acceleration and AI monetization. However, investors should be aware of potential risks such as high capex intensity and negative free cash flow.