3 Cloud Stocks Set to Rise Above Those Pesky Gov’t Spies!

Rudy Martin

Although the Edward Snowden/National Security Agency scandal continues to make headlines, electronic eavesdropping is nothing new.

In fact, I would bet the idea came up on May 25, 1844. That was the day after Samuel F.B. Morse transmitted his famous "What had God wrought?" telegraph message.

SIGINT (spy lingo for "signals intelligence") blossomed during the Second World War. The Allies won key battles — and ultimately the entire war — thanks to teams that broke German and Japanese codes.

Now we have confirmation, via young contractor Edward Snowden, that the NSA sometimes deploys its hyper-SIGINT capabilities on the domestic front. Some data-processing professionals now wonder if "the cloud" could be more translucent than they thought.

"Cloud computing" is the increasingly popular practice of storing digital information with third-party service providers. Businesses thought the cloud was cost-effective, efficient and secure. The "secure" part is suddenly in doubt — as are the business prospects of cloud-service providers.

The Information Technology & Innovation Foundation (ITIF) recently predicted the cloud computing industry in the U.S. could take a hit of as much as $35 billion by the year 2016, thanks to the NSA scandal.

Forrester Research of Cambridge, Mass., predicted an even-worse hit to the industry. "We think this estimate is too low and could be as high as $180 billion, or a 25% hit to overall IT service provider revenues in that same time frame," said analyst James Staten.

Time to Jump from the Cloud?

I use cloud-based tools for my professional investment activities, including Global Trend Trader. I plan to keep using them, and I’m not dumping my cloud technology stocks. Here’s why …

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In my experience, the most profitable investment opportunities are where "the crowd" sees only problems. With billions sunk into a gigantic data infrastructure, I can’t see the cloud evaporating anytime soon.

Would we abandon the food industry just because someone choked on a carrot? Of course not!

As I see it, the data security issue is an opportunity. Entrepreneurs have a chance to find remedies for the security mania. I think we will see a wave of new data encryption software and hardware innovation.

I already see three well-known firms launching new efforts.

  • INTEL (INTC) now offers a 256-bit encryption capability called AtTask.
  • GOOGLE (GOOG) has an automatic "128-bit Advanced Encryption Standard" cloud service.
  • DELL INC. (DELL), already active in cloud security consulting, has big expansion plans.

These large companies are involved in other businesses, of course, and Dell needs to resolve its ownership issues. Data-security developments may have more-immediate impact on smaller firms.

Security services for individual users and their devices will be a key segment. Symantec (SYMC) is a leading provider for both businesses and consumers. Look for advanced versions and heavy promotion from this retail-smart software firm.

Several "dark horse" information technology players could also jump into the game. Firms to watch include:

  • Hewlett-Packard (HPQ)
  • Microsoft Corp. (MSFT)
  • International Business Machines (IBM)
  • Cisco Systems (CSCO)
  • Oracle (ORCL)

Much cyber-security progress is happening at small private or venture-backed startups. A presently unknown "Facebook of data security" could be gestating right now in some low-rent corner of the data-processing industry. I’m watching for candidates to buy in Global Trend Trader.

New encryption software and hardware devices should hit the market soon, likely with heavy promotion. "The Cloud" will survive and grow into a global data repository.

The NSA will survive as well, and continue working to penetrate every shield. In the 1990s I frequently visited a friend who lived close to the NSA headquarters at Fort Meade, Md. Drab-looking from the outside, it was the world’s largest data processing facility even then.

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Through my Maryland acquaintance, I met many people who said they were electrical engineers or mathematicians at Fort Meade. They talked little of their work, but it was obvious to everyone they were with the NSA.

These were incredibly brilliant people. I was glad to know they were gathering intelligence on the bad guys — instead of competing against me in the investment business. Now I hope they redirect their talents back toward the true miscreants and not U.S. citizens.

Data security is big business on both sides of the battle. Governments are responsible for defending their people — and individuals and businesses have to protect themselves. Their efforts will create investment opportunities for us all. We just have to watch for them!