We always want to take our cue from stocks and I get that entirely. I totally understand how we could believe that it must be all over for the cloud stocks given that they couldn't bounce back on Monday.
We could also argue, as someone did on my Twitter (TWTR) feed, that the top came when Cloudera (CLDR) decided to stop battling with Hortonworks (HDP) and decided to join forces. Or the top came with Saleforce.com's (CRM) annual Dreamforce extravaganza. Or the top came with the last cloud stock that came out of the IPO chute like a cannon. Or when Twilio (TWLO) reported a monster quarter.
I am not here to convince you that you should own a cloud stock, let alone a boatload of them which is what would have seemed to be very right even a month ago. I am simply saying that every time the cloud stocks have given up the ghost and gotten the downgrades and the derision for being too expensive, they have come roaring back and I can't see why that would be different sometime this month or next.
In other words I am ceding that the declines could go on a bit. No one knows how much there is for sale. No one knows how to stop a theory that there's a slowdown even as we can tell from the stocks of Nvidia (NVDA) , AMD (AMD) and Intel (INTC) that some people are definitely worried about a data center growth glitch. With these multiples a glitch is a terrible thing to waste....on a shortseller.
What can help to figure these things out? I think you should go back to the great washout of February 2014 or the big sell-off during the winter of 2015 to learn more.
In both cases there were IPO floods as every kind of cloud based equity came to the market place. There was simply too much supply and not enough demand. The selloff of 2015 got exacerbated when LinkedIn, now owned by Microsoft (MSFT) , and Tableau Software (DATA) both pre-announced to the downside the same day -- the latter wasn't even a cloud stock at the time.
No matter, at the time of both sell-offs I shouted until the cows came home that it was not the end of the cloud.
But I had the good sense not to start the shouting early. I said when you have big sell-offs like these -- the type that really freak people out and call into question the whole notion of growth investing -- you can't just say "okay, now's the time, I have to own some."
You can say, "Okay, I think that they are throwing away the good ones with the bad and I will let the ETF selling -- they are all in ETFs -- run its course." The sellers of these stocks fear giving back big gains. They also have heard the stories about how the cloud business has to be slowing because data centers are slowing.
This is a hard thesis for me to swallow. I just met with a dozen or so cloud CEOs and they all can't be snowing me. They all had good things to say and to show me for that matter. Same with CyrusOne (CONE) , one of the largest data farm REITs. The numbers are so far ahead of last year at this time that it is hard to say "you know what, forget those numbers I have my own intuition."
Now I will give the bears this: we are in murky territory. There is nothing to stop the rain of selling for the moment. When hedge funds come up with a top thesis you have to go down a lot -- including taking out a lot of technical levels -- before you can bounce.
But the secular trend of business migrating to the cloud and needing all of these services isn't old. It's not young for certain. However, to say it is finished as a growth cohort seems almost silly to me after being out on the West Coast and seeing it with my own eyes. Did the stocks get too hot? Yes. No kidding.
Are they finished?
Better question to ask: "can you let me know when the sellers are finished? I want in."
