Cloud Computing ETFs: Riding the Digital Wave
Cloud software runs the modern economy, but the two leading cloud ETFs define 'cloud' very differently and both carry rich valuations. Here's what separates SKYY from CLOU.
Don't have time? Here's what you need to know:
- 1Cloud ETFs bundle infrastructure providers and SaaS software firms, but 'cloud' has no fixed definition, so funds differ in what they hold.
- 2SKYY includes mega-cap infrastructure and behaves more like broad tech; CLOU tilts toward pure-play SaaS and is historically more volatile.
- 3Cloud and SaaS stocks carry high valuations, making them very sensitive to rising rates — both leading funds fell sharply in 2022.
- 4With fees around 0.60% and heavy overlap with broad tech funds, a cloud ETF works best as a small satellite, not a core holding.
What 'Cloud Computing' Means in an ETF
Cloud computing covers the delivery of software, storage and computing power over the internet rather than from machines you own. In investing terms it spans a few layers: the giant infrastructure providers that rent out servers, the software-as-a-service (SaaS) companies that sell subscription applications, and the firms supplying the picks and shovels in between. A cloud ETF tries to bundle these into a single theme.
The trouble is that 'cloud' has no precise boundary, so different funds draw the line in different places. That is why the two leading cloud ETFs — SKYY and CLOU — can look quite different under the hood despite sharing a name. Knowing how each defines the theme is the key to picking between them.
SKYY vs CLOU: Two Different Definitions of Cloud
SKYY, the First Trust Cloud Computing ETF, casts a wide net. It includes the mega-cap infrastructure providers — the dominant cloud platforms run by big tech — alongside pure-play software names. That gives it a heavier tilt toward large, established companies and more overlap with a standard tech fund.
CLOU, the Global X Cloud Computing ETF, leans more toward pure-play SaaS companies and tends to hold smaller, faster-growing, more richly valued software names with less weight in the megacaps. The practical result: SKYY behaves a bit more like a large-cap tech fund, while CLOU is a more concentrated bet on subscription-software growth — and historically the more volatile of the two.
| SKYY | CLOU | |
|---|---|---|
| Issuer | First Trust | Global X |
| Expense ratio | ~0.60% | ~0.68% |
| Tilt | Includes mega-cap infrastructure | Pure-play SaaS focus |
| Cap profile | More large-cap | More mid-cap / growth |
| Behavior | Closer to broad tech | More volatile, growth-heavy |
The Two Risks: Valuation and Fees
Cloud and SaaS companies have often traded at high valuation multiples because investors pay up for fast, recurring subscription revenue. That works beautifully in a low-rate, risk-on market and painfully in reverse: when interest rates rose in 2022, richly valued software stocks were among the hardest hit, and cloud ETFs fell sharply. A high price-to-earnings multiple is a feature on the way up and a liability on the way down.
The second risk is cost. Cloud ETFs typically charge around 0.60% or more — many times the fee of a broad tech fund near 0.10%. Since much of a cloud ETF's exposure overlaps with companies you already hold in a standard tech or index fund, you are paying a thematic premium for a curated slice. The expense ratio is a guaranteed annual cost; the theme's outperformance is not guaranteed at all.
Important: Cloud and SaaS stocks tend to carry high valuations, which makes them especially sensitive to rising interest rates. Cloud ETFs fell hard in 2022 for exactly this reason — strong businesses can still be poor investments at the wrong price.
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Where a Cloud ETF Belongs
If you own a broad technology fund or the S&P 500, you already hold the largest cloud-infrastructure companies at meaningful weight. A dedicated cloud ETF mostly adds a tilt toward pure-play software and concentrates the bet — useful only if you specifically want more exposure to subscription-software growth than the broad market gives you.
Handled as a small satellite over a diversified core, a cloud fund is a reasonable expression of conviction in SaaS. As a large position it exposes you to a narrow, expensive, valuation-sensitive corner of the market. Decide which fund's definition of 'cloud' you actually want — SKYY's broader, megacap-inclusive version or CLOU's pure-play tilt — and keep the position modest.
Tip: Compare a cloud ETF's top holdings to your existing tech fund. If the megacaps overlap heavily, CLOU's pure-play tilt may add more that's genuinely new than SKYY's broader basket.
Frequently Asked Questions
What is the difference between SKYY and CLOU?
SKYY (First Trust) casts a wider net and includes the mega-cap cloud-infrastructure providers, so it behaves more like a large-cap tech fund. CLOU (Global X) leans toward pure-play SaaS companies with more mid-cap, growth-oriented names and less megacap weight, which historically makes it the more volatile of the two. They share a name but define 'cloud' differently.
Are cloud computing ETFs a good investment?
Cloud software underpins much of the modern economy, but cloud ETFs carry two notable risks: high valuations that make them sensitive to rising interest rates, and fees around 0.60% or more versus roughly 0.10% for a broad tech fund. They also overlap with companies you may already own. They work best as a small, deliberate satellite for investors who specifically want extra SaaS exposure.
Why did cloud ETFs fall so much in 2022?
Cloud and SaaS stocks often trade at high valuation multiples because investors pay up for fast, recurring subscription revenue. When interest rates rose sharply in 2022, those richly valued growth stocks were repriced hardest, and cloud ETFs fell more than the broad market. High-multiple stocks are especially exposed when rates climb.
Do I already own cloud stocks in my index fund?
Largely, yes. The biggest cloud-infrastructure providers are mega-cap technology companies that feature heavily in the S&P 500 and broad tech funds. A dedicated cloud ETF mainly adds a tilt toward smaller pure-play software firms, so much of its largest holdings may already sit in your existing funds.
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Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.