Rising interest rates, fast inflation and economic uncertainty have led to technical valuations being whipped up – but not so much in enterprise software. The CIO says demand remains stable as businesses continue to rearrange themselves around cloud computing and data.
Information technology companies, including International Business Machines Corp.
Hewlett Packard Enterprise Co.
And
Oracle Corporation
Technology stocks have shown resilience amid declines. All three have outperformed the falling market benchmarks since the beginning of the year.
As of Wednesday, the tech-heavy Nasdaq Composite Index had fallen more than 23% from January. Over the same period, share prices for IBM, which sells cloud-based enterprise software and services, rose 4.3%.
Prices have remained nearly constant for HPE, a commercial software firm separate from computer maker Hewlett Packard. On Wednesday, the company reported sales of $6.7 billion for the quarter ended April 30, up 1.5% year-over-year, with online software orders nearly doubling from the previous year.
Major US stock indexes continued to sell on Friday, with the S&P 500 entering bear-market territory for the first time in more than two years. The WSJ’s Caitlin McCabe looks at some of the key reasons for market volatility. Photo: John Minchillo / The Associated Press
Shares of software company Oracle also haven’t done well, falling about 17% this year as of Wednesday. But its prices have remained well above the sliding tech-market benchmark. In March, the company Cloud revenue posted double-digit growth for the quarter ended February.
“Enterprise IT is perceived by investors as safer and less fickle than consumer tech,” said Karina Mann, consultant at management consulting firm Egon Zander. When the dotcom bubble burst in the early 2000s, consumer digital valuations were wiped out. “But venture technology was still where investors were putting their money,” she said.
Enterprise technology demand became apparent last week when the semiconductor giant
broadcom Inc.
said it would acquire
VMware Inc.
In a deal worth $61 billion. vmware is Virtualization technology is known forIn which software is used to replace more expensive physical devices.
“The demand for technology is greater than ever,” said Jim Swanson, executive vice president and enterprise chief information officer for the New Brunswick-based NJ-based healthcare and consumer-goods giant.
He added that the COVID-19 pandemic has highlighted the importance of capabilities such as cloud-based enterprise tools to cope with sudden market changes and weather changes in uncertain times.
In the same way businesses turned to cloud computing in the pandemic – for remote work, customer services and productivity – they would be wise to continue, Ms Mann said. “Companies looking to mitigate risk exposure and anticipate future volatility challenges should think about this now,” she said.
The demand for cloud computing services, in which users rent computing resources, is strong. Global spending on public cloud services is expected to reach $494.7 billion this year, up 20.4% from last year, said IT research and consulting firm
gartner Inc.
Estimate. Many companies use multiple clouds, which creates multiple options for storing data or running applications.
“The ability to easily select workloads based on cost efficiency is a key capability,” said Brennan Sullivan, chief information officer at Quest Software Inc. It’s such a basic requirement in any enterprise technology environment that at this point, I don’t see much correlation with market movements.”
Enterprise tech companies are benefiting from the ongoing demand for cloud computing.
The Salesforce logo was displayed on the New York Stock Exchange last month.
photo:
Michael Nagle/Bloomberg News
sales force Inc.,
Cloud Market’s largest pure-play vendor of subscription-based enterprise software, on Tuesday Recorded quarterly revenue of $7.4 billion, up 24% from the same period a year ago. The company, whose core product is customer-relationship management software, is on track to surpass $30 billion in annual revenue this year.
Tech titans’ cloud-computing units like
Microsoft Corporation
And
Amazon.Com Inc.
Development has also continued. In April, Microsoft Reported $23.4 billion in cloud revenue For the March quarter, up 32% compared to a year ago, the company said.
For Amazon, the cloud was an island of strength in April, when the company reported its first quarterly loss in seven years. Amazon Web Services, the company’s cloud-computing service, Reported $18.4 billion In first quarter sales, up 37% from a year ago. Companywide, sales increased 7% to $116.4 billion.
Even large stores of data are becoming essential to the operations of most businesses, said Eric Bradley, chief strategist at Enterprise Technology Research, a research firm. Mr Bradley said he expects demand for enterprise-tech platforms that offer data administration, data management and other analytical tools will continue to grow regardless of economic conditions.
Last year, data-analytics company Databricks Inc. raised $1.6 billion in a single fundraising round, raising its private-market valuation to $38 billion. In February, the company reported $800 million in sales for 2021, up 80% from the previous year.
CIOs are still keen on technology that helps their companies chase revenue growth, so “there’s no real opportunity to back spending,” said John-David Lovelock, a research vice president and distinguished analyst at Gartner.
—Isabelle Basquet contributed to this article.
write to angus lowten angus.loten@wsj.com
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