Public cloud investment has plummeted in 2022

US and European public cloud firms have lost $1.6 trillion from their overall market capitalization over the last 12 months, a new report has warned.

Research by analyst firm Accel looked at the valuation of 100 publicly-traded US and EU businesses that center their business models around cloud storage services.

It concluded that the valuations of these firms have dropped to around pre-pandemic levels, before the sudden switch to digital caused an explosion in the demand for cloud computing.

Cloud firms: in decline?

The total collective value of the cloud firms monitored dropped from an all-time peak of $2.8 trillion in September 2021 to just $1.2 trillion in September 2022, a decline of 57%.

But it’s not just the valuations of publicly traded firms that are faltering. Accel's report also found that the cloud Initial Public Offering (IPO) market is experiencing its "biggest drought" since the 2008 financial crisis.

Outside the stock market, it's not all doom and gloom. Merger and acquisition (M&A) activity remains high, driven in part by funds taking public companies private, and reportedly paying a 33% premium to the stock price on average.

For example, cloud-based SaaS firm Zendesk was purchased for $10.2 billion by two private equity firms in June 2022,  a 34% premium to its stock price.

The private funding drives of cloud firms have been hit nowhere near as much as public valuations. The total capital raised by cloud companies in Europe, Israel, and the US has not drastically changed, with total funding reaching $74 billion in 2022 so far, just 12% lower than in 2021.

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With conflicting data, it's hard to say whether the dominance of cloud computing is truly coming to an end. 

However, the benefits of cloud computing, such as hybrid working, remain crucial for enterprises as the pandemic continues. That's especially true if bosses want to minimise the disruption caused by another black swan event in the future.

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