AI Could Be Catalyst for Cloud Computing Stocks, ETFs

There are clear intersections between artificial intelligence (AI) and cloud computing. But for some reason the latter has been an afterthought as the former has flourished in 2023.

Still, some cloud-related ETFs are delivering solid performances. For example, the WisdomTree Cloud Computing Fund (WCLD) is higher by almost 21% year to date. That includes a 6% rally last week, which could be a sign that some investors are awakening to the fact that AI evolution is a credible catalyst for cloud computing equities.

WCLD, which tracks the BVP Nasdaq Emerging Cloud Index, could be a consideration for tactical investors looking to position for the possibility of cloud stocks playing “catch-up” with AI counterparts. To that point, it’s worth acknowledging that many WCLD holdings can be considered “emerging” cloud companies. That status, coupled with exposure to AI, implies those names are rarely inexpensive by traditional metrics, indicating waiting around for valuations to decline may not be the best course of action.

Other Factors That Could Support Cloud Computing ETF WCLD

WCLD has turned in a fine performance this year. And the intersections between AI and the cloud are increasingly credible. But macro factors are seen as hamstringing cloud equities; namely, high interest rates are a hurdle for the group.

“At least based on what we have seen since 2021, emerging cloud software stocks like those in WCLD have been very interest rate sensitive. When we see the U.S. 10-Year Treasury note interest rate going up, we tend to see valuations dropping…and performance doing the same. Similarly, when rates fall, performance picks up,” noted WisdomTree Global Head of Research Christopher Gannatti.

The sensitivity of cloud stocks to interest has been on display, for the better, in recent weeks. For the month ending November 17, WCLD returned 4.56% during a period in which 10-year Treasury yields trended lower.