Cloud data stocks have been all the rage in 2012. Stocks that specialize in big data have done very well, and have established very high valuations. They have done so well, that Larry Ellison of Oracle (ORCL) announced on Tuesday at its Openworld conference that the company is jumping full force into enterprise cloud data.
"Oracle will have thousands of cloud customers by the end of the year," predicts Ellison.
Since Ellison belittled the cloud at its last year's Openworld conference ("it's a bad security model"), this was a 180 degree change in opinion. I believe that just as Oracle has entered the game, big data has reached a peak in growth rate. The following are clues that lead me to this conclusion.
1. Larry Ellison said that Oracle plans no major acquisitions for the next few years. Oracle has $45 billion in cash. Ellison wouldn't have made such a decisive statement if he thought the big data business was going to continue beating expectations and the companies are undervalued.
2. Lately, companies that sell enterprise software have been missing expectations and lowering guidance.
- Today, Informatica (INFA) pre-announced weaker than expected results for its third quarter citing softness in Europe. The stock dropped 25% on the news to $25.25. FBN securities, which had a price target of $45 for Informatica, lowered it to $32 today.
- Xyratex (XRTX), a company that sells data storage devices, yesterday reported weaker than expected 3rd quarter results also from macro factors. Xyratex said its largest customer, NetApp (NTAP), gave it 30% less business last quarter than the previous quarter. NetApp, which sells enterprise storage hardware and software, has had a rough go of it lately and is approaching its 52 week low.
3. Yesterday Hewlett Packard (HPQ) CEO Meg Whitman said that the company will have a big profit drop and will need to make massive management changes. The stock dropped 14% on the news to reach a 10 year low. HPQ has a large enterprise software business.
4. I believe the stock market is toppy and due for a pullback.
5. There are ongoing headwinds in Europe.
For the third quarter, so far every cloud data company that I know of has had results that didn't live up to expectations. The way to play this trend is pretty clear: short stocks that specialize in big data that have yet to report third quarter earnings. This includes VMware (VMW), EMC (EMC), SAP (SAP), Splunk (SPLK), Actuate (BIRT), Qlik (QLIK), and Teradata (TDC). The companies which make a large percentage of revenues from Europe are especially vulnerable.
Disclosure: I am short SPLK.