Investors have made a ton of money in cloud computing stocks over the past 15 years. The transformation from on-premise to off-premise software, data storage, and security has been truly revolutionary for the technology industry.
But at some point, a concept may get played out. And it seems like we’re reaching that point with cloud computing. The concept is hardly novel at this point, and a great deal of software-as-a-service (SaaS) vendors have already fully adopted cloud solutions into their product ecosystems.
In other words, while cloud computing was a megatrend that delivered huge profits for early adopters, there are no guarantees that newer firms will be able to find similar success in coming years. These are three cloud computing stocks to avoid that don’t seem like they have found the recipe for long-term success in the industry.
Hub Cyber Security (HUBC)
Hub Cyber Security (NASDAQ:HUBC) is a small Israeli company focused on cybersecurity and quality and reliability systems. It operates the following segments: Consulting, software, training, and software testing and outsourcing.
The company was flying under the radar until October 2023. On October 9th, 2023 shares more than doubled in a single day following the Hamas attacks in Israel. Traders seemingly concluded that Hub Cyber Security would see an influx of new business as the Israeli government and businesses responded to the geopolitical unrest.
Since then, however, HUBC shares have lost most of their value. In fact, the stock is now down 95% over the past year. It has also replaced its CFO and CEO in short order. The company is also enacted a reverse stock split to get back in-line with Nasdaq listing compliance late last year. But with the stock already back in penny stock territory, HUBC stock may have to take more actions to get its share price back above a dollar.
All this looks like a typical SPAC deal gone bad; a fledging cloud technology company with a small revenue base and sizable operating losses that will struggle to stick around for the long haul.
Rekor Systems (REKR)
Rekor Systems (NASDAQ:REKR) is a small business that has been involved in a variety of different undertakings in recent years. The company at one point was involved in crisis management, consulting, traffic solutions, secure education, and strategic back office services among others. There was a push for AI-driven machine learning at another point.
Not surprisingly, REKR stock attracted trader interest as an AI penny stock in 2023. However, Rekor Systems was unable to convert the visibility into any lasting momentum in the business’ operations or share price.
Rekor’s most recent earnings report once again fell short of expectations. Despite all the mergers and acquisitions and numerous press releases, Rekor has struggled to demonstrate much progress.
As such, it’s hard to imagine the company will still be in business a decade from now unless its products find much more commercial traction in the market.
Consensus Cloud Solutions (CCSI)
Consensus Cloud Solutions (NASDAQ:CCSI) provides digital cloud fax technology. This allows companies, particularly in the healthcare space, to secure their digital communications.
While faxes (digital or otherwise) are hardly the latest communications technology, there is still some demand here, at least for the time being. In certain fields, clients opt for the traditional secure and proven communications channel rather than a newer and more flexible but potentially more vulnerable option.
That said, Consensus Cloud is not firing on all cylinders right now. Revenues were up only marginally year-over-year, and other metrics such as total client figures were around flat as well. It’s tough to gain much growth in what seems like a structurally declining industry. As the company’s risk factors disclosure notes, there is risk of: “Reduced use of fax services due to increased use of email, scanning or widespread adoption of digital signatures or otherwise.”
Over the next decade, that seems likely to be the case, in fact. CCSI stock seems cheap on an earnings basis. But the company has debt, and a negative book value per share figure. It’s far from certain this business will still be around in 2034, at least as an independent public entity.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
