At the height of the pandemic, cloud computing stocks were one of the strongest subsectors of tech. However, the sector could be suffering a case of too much too soon as valuations of cloud computing companies got elevated to lofty heights, which is allowing bears to prosper amid inflation pressures on tech in 2022.
Cloud computing, fundamentally, is a strong growth opportunity when it comes to more core business operations moving online. That was especially the case amid social distancing measures during pandemic lockdowns.
However, with a forthcoming recession, businesses could be hesitant to open their wallets to more cloud computing spending. That could translate to bearish opportunities for savvy traders who may spot the opportunity.
“Cloud computing is widely viewed as a recession-resistant business, but the theory has not really been tested, as cloud-service providers have not experienced a major economic downturn since becoming a core element of of tech infrastructure,” a MarketWatch article noted.
“As a potential recession looms, investors should be prepared for the cloud boom to return to Earth, and there is potential for a larger pullback in cloud spending that could have a domino effect on already bludgeoned tech stocks,” the article added. “While analysts expect growth to pull back from recent years’ unsustainable levels of 40% or more to closer to 20%, companies looking to cut costs in the months ahead could cause a larger decline.”
Get on the Short Side of Cloud Computing
As opposed to taking short options on specific cloud computing companies using various positions, there’s an easier way for traders who also want the added dose of leverage in their position. As such, one fund to consider is the Direxion Daily Cloud Computing Bear 2X Shares (CLDS ).
CLDS seeks 200% of the inverse (or opposite) of the daily performance of the Indxx USA Cloud Computing Index. The fund invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80% of the fund’s net assets (plus borrowing for investment purposes).
Like all leveraged ETFs, these Direxion products are intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results, and who plan to actively monitor and manage their positions. There is no guarantee that these funds will meet their objectives.
For more news, information, and strategy, visit the Leveraged & Inverse Channel.