U.S. investors remain bullish, despite rumblings out of China and the spike in delta variant infections.

Cloud companies — those at the forefront of the shift in computing power to distributed models over the internet — are expected to grow at a rapid clip over the next several years, and four of the five largest exchange traded funds covering the space are close to hitting record highs.

Below is a screen of stocks held by those ETFs, showing which are expected to increase their sales the most through 2023. In an industry with many players at relatively early stages, increases in sales, rather than in earnings, might be the best driver of stock prices.

To begin the screen, we looked at the five largest cloud ETFs:

ETF

Assets ($bil)

Expense ratio

Holdings

Strategy

First Trust Dow Jones Internet Index Fund
FDN

$10.8

0.51%

42

Tracks a market cap-weighted index of largest U.S. internet companies.

First Trust Cloud Computing ETF
SKYY

$6.3

0.60%

65

Tracks an index of cloud companies, with holdings capped at 4.5%.

ARK Next Generation Internet ETF
ARKW

$5.8

0.79%

46

Actively managed, holding shares of “companies its managers have identified as benefiting from an infrastructure shift away from hardware and software toward cloud and mobile,” according to FactSet.

Global X Cloud Computing ETF
CLOU

$1.4

0.68%

36

Tracks a market cap-weighted global index of companies involved in cloud computing.

WisdomTree Cloud Computing Fund
WCLD

$1.3

0.45%

57

Tracks an equal-weighted index of U.S. companies primarily focused on cloud software and services.

Source: FactSet

ETFs might be your best way to take a broad approach for a long-term play on the cloud revolution. If you are interested in any ETF, you should review the fund manager’s website.

Here’s a comparison of total returns through Aug. 4, along with those for the SPDR S&P 500 ETF
SPY
and the Invesco QQQ Trust
QQQ
(which tracks the Nasdaq-100 Index
NDX
) for comparison:

ETF

Total return – 2021

Total return – 2020

Total return – 3 years

Total return – 5 years

Total return – 10 years

First Trust Dow Jones Internet Index Fund 
FDN

15%

53%

76%

213%

646%

First Trust Cloud Computing ETF
SKYY
 

12%

58%

99%

233%

526%

ARK Next Generation Internet ETF
ARKW
 

3%

157%

206%

620%

N/A

Global X Cloud Computing ETF 
CLOU

4%

77%

N/A

N/A

N/A

WisdomTree Cloud Computing Fund
WCLD
 

9%

110%

N/A

N/A

N/A

SPDR S&P 500 ETF
SPY

18%

18%

63%

123%

344%

Invesco QQQ Trust
QQQ
 

17%

49%

109%

231%

650%

Source: FactSet

The ETFs’ approaches differ. For example, the ARK Next Generation Internet ETF
ARKW
is the only one that is actively managed. The others track an index. It is also the only one that holds shares of Tesla Inc.
TSLA,
which makes up 10.65% of the portfolio, according to information posted by ARK Invest on Aug. 5. Tesla is an electric-vehicle manufacturer, but it can also be considered a cloud company because it distributes software updates over the internet continually, and offers other cloud-based services.

Another holding unique to ARKW among the five cloud ETFs is Walt Disney Co.
DIS,
which is certainly an important cloud player through its Disney+ streaming service, even if the company doesn’t say directly how much of its sales are derived from that rapidly growing segment.

As part of its description of ARKW, FactSet says the following:

“Broadly speaking, the ARKW’s managers appear focused on big buzzwords such as Internet of Things, cloud computing, digital currencies and wearable technology. While the fund’s focus may be appealing for investors with conviction in these new technologies, portfolio implementation is a more difficult task: Most of the companies developing these advancements are huge corporations for which nascent technologies are only a small fraction of total revenues. As such, it’s very difficult to get pure-play access to ARKW’s targeted technologies — so be sure to confirm that the fund’s holdings — not just its thesis — align with your view of the space.”

Cloud-stock screen

Together, the five cloud ETFs listed above hold 147 stocks. To project sales growth through 2023, we used calendar 2020 sales estimates as a baseline and then looked at consensus estimates among analysts polled by FactSet for the subsequent three years, if available. (The 2020 numbers are estimates, because many companies’ fiscal years don’t match the calendar.)

To make sure we had a solid set of estimates, we confined the group to the 126 companies covered by at least five analysts polled by FactSet, for which consensus sales estimates for calendar 2020 through calendar 2023 are available.

Here are the 20 companies projected to have the highest compound annual growth rates (CAGR) for sales through calendar 2023:

Company

Country

Est. sales – 2020

Est. sales – 2021

Est. sales – 2022

Est. sales – 2023

Projected three-year sales CAGR

Held by

Coinbase Global Inc. Class A
COIN

U.S.

$1,277

$6,159

$5,629

$6,880

75.3%

ARKW

LendingClub Corp.
LC

U.S.

$315

$748

$1,064

$1,251

58.4%

ARKW

Sea Ltd. ADR Class A
SE

Singapore

$4,376

$8,577

$12,494

$16,359

55.2%

ARKW

Pinduoduo Inc. ADR Class A
PDD

China

$9,096

$17,850

$25,008

$32,624

53.1%

ARKW

Snap Inc. Class A
SNAP

U.S.

$2,507

$4,182

$6,174

$8,894

52.5%

FDN, ARKW

Kingsoft Cloud Holdings Ltd. ADR
KC

China

$1,010

$1,526

$2,326

$3,515

51.5%

SKY

DraftKings Inc. Class A
DKNG

U.S.

$639

$1,173

$1,625

$2,219

51.4%

ARKW

Zillow Group Inc. Class A
ZG

U.S.

$3,340

$5,536

$7,953

$11,566

51.3%

FDN

Zillow Group Inc. Class C
Z

U.S.

$3,340

$5,536

$7,953

$11,566

51.3%

FDN, ARKW

Skillz Inc. Class A
SKLZ

U.S.

$230

$387

$554

$734

47.2%

ARKW

Teladoc Health Inc.
TDOC

U.S.

$1,094

$2,012

$2,597

$3,292

44.4%

FDN, ARKW

MercadoLibre Inc.
MELI

Argentina

$3,972

$6,676

$9,043

$11,877

44.1%

ARKW

Roku Inc. Class A
ROKU

U.S.

$1,778

$2,819

$3,888

$5,164

42.7%

ARKW

Shopify Inc. Class A
SHOP

Canada

$2,929

$4,617

$6,223

$8,447

42.3%

SKY, ARKW, CLOU, WCLD

CrowdStrike Holdings Inc. Class A
CRWD

U.S.

$841

$1,321

$1,807

$2,388

41.6%

SKY, WCLD

Veracyte Inc.
VCYT

U.S.

$117

$204

$263

$328

40.8%

ARKW

Pinterest Inc. Class A
PINS

U.S.

$1,693

$2,619

$3,444

$4,622

39.8%

FDN

Tesla Inc.
TSLA

U.S.

$31,536

$50,035

$68,401

$85,143

39.2%

ARKW

Adyen N.V. ADR
ADYEY

Netherlands

$817

$1,142

$1,601

$2,197

39.0%

ARKW

Square Inc. Class A
SQ

U.S.

$9,498

$18,951

$21,347

$25,077

38.2%

ARKW, WCLD

Okta Inc. Class A
OKTA

U.S.

$814

$1,189

$1,642

$2,146

38.1%

FDN, ARKW, WCLD

Source: FactSet

Click on the tickers for more about each company.

There are actually 21 stocks listed, including Zillow Group Inc.’s Class A
ZG
and Class C
Z
shares.

It is interesting to see that the list is dominated by stocks held by ARKW. The fund has a broad definition of cloud companies and is focused also on sales growth.

Here are current forward price-to-sales ratios based on consensus estimates for the next 12 months, as well as ratios of current market cap to projected 2023 sales and summaries of analysts’ opinions about the stocks.

Company

Forward price/ sales

Price/ est. 2023 sales

Share “buy” ratings

Closing price – Aug. 4

Consensus price target

Implied  12-month upside potential

Coinbase Global Inc. Class A
COIN

9.0

5.0

76%

$244.36

$377.89

55%

LendingClub Corp.
LC

2.8

2.1

20%

$27.56

$24.90

-10%

Sea Ltd. ADR Class A
SE

17.0

6.7

95%

$293.51

$312.10

6%

Pinduoduo Inc. ADR Class A
PDD

5.6

3.4

72%

$89.28

$162.44

82%

Snap Inc. Class A
SNAP

24.3

11.5

67%

$76.90

$85.17

11%

Kingsoft Cloud Holdings Ltd. ADR
KC

3.8

1.8

93%

$28.91

$48.86

69%

DraftKings Inc. Class A
DKNG

31.6

8.8

67%

$48.67

$69.52

43%

Zillow Group Inc. Class A
ZG

4.5

0.6

64%

$110.43

$180.21

63%

Zillow Group Inc. Class C
Z

4.5

1.7

63%

$109.23

$177.44

62%

Skillz Inc. Class A
SKLZ

10.3

5.5

57%

$12.14

$19.86

64%

Teladoc Health Inc.
TDOC

10.2

7.2

55%

$149.73

$199.26

33%

MercadoLibre Inc.
MELI

11.4

6.6

78%

$1,570.00

$2,065.37

32%

Roku Inc. Class A
ROKU

16.0

9.4

75%

$420.32

$481.43

15%

Shopify Inc. Class A
SHOP

36.9

20.8

56%

$1,555.52

$1,718.24

10%

CrowdStrike Holdings Inc. Class A
CRWD

40.2

22.0

91%

$264.21

$274.23

4%

Veracyte Inc.
VCYT

13.1

10.0

78%

$46.34

$64.14

38%

Pinterest Inc. Class A
PINS

13.5

7.2

50%

$60.13

$72.09

20%

Tesla Inc.
TSLA

11.5

8.3

43%

$710.92

$698.94

-2%

Adyen N.V. ADR
ADYEY

N/A

38.3

45%

$55.20

$52.35

-5%

Square Inc. Class A
SQ

6.8

4.2

63%

$266.42

$299.39

12%

Okta Inc. Class A
OKTA

24.4

14.4

65%

$247.38

$275.43

11%

Source: FactSet

In comparison, the forward price-to-sales ratio for SPY is 2.8, with a price/2023 estimated sales ratio of 2.6. For QQQ, the current P/S is 4.7, declining to 4.3 for 2023.

Don’t miss: Semiconductor stocks are rallying — and they still look like bargains

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