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What does cloud technology mean to the average investor? Quite a lot. Cloud technology has a big impact on portfolios. Let's look at cloud technology as a whole and then let's look at certain industries inside of the technology sector.

Cloud computing, or the ability to rent out someone else's data center, is extremely agile and it enables organizations to be able to rent technology services instead of purchasing them.  Some organizations prefer renting Technology Services because there is no capital expenditure upfront.

In a traditional data center environment, organizations must buy the capacity that is needed for their peak times. So the average retailer builds for Black Friday through the Christmas season, which means their servers that support their website for their ecommerce site might be utilized at 2 percent all year, but they need to build it for that 100 percent Black Friday sales volume so they don't lose orders. By migrating to the cloud, organizations can size their applications to run naturally with only 2 percent capacity during 11 months of the year and with increased capacity as needed. This promotes so much more business agility.

Migrating to the cloud enables organizations to reduce capital expenditures, but it does convert them to operational expenditures. So organizations need to assess what that does to their balance sheets and financial statements. However, cloud technologies enable things to be done much faster and with much more agility.

Cloud technology gives organizations access to pre-made libraries of application code and software and a host of other things. Cloud technologies enable businesses to innovate faster while spending less money on technology. This results in more innovation, more sales, and higher returns on investment. So cloud technology provides operational and financial benefits for most organizations.

Cloud technology also has an impact on investing in the technology sector. Previously, investments in this sector were focused on the big players: Cisco (CSCO), Red Hat (RCAT), the firewall companies, the load balancers companies such as F5 (FFIV) the DNS providers, and other technology vendors. Now, as organizations migrate towards the cloud, the cloud providers become the primary consumers of this technology, which results in a shift of the customer base from the average user to the cloud providers.

As this has happened, the cloud providers have started developing some of their own data center technology. For the Cisco's of the world, this means that their physical hardware is not as relevant as it used to be in a wide variety of use cases. So those providers need to innovate to be more readily available on the cloud, which they're doing. As a result, we will see changes in the profitability of technology organizations migrating towards the cloud providers and migrating towards the people that make the cloud providers’ equipment, as opposed to the people that deal with the average customer because most technology is going to the cloud.

Cloud technology is not new. It has been around for a couple of decades. But the cloud used to be just a network. Now that the cloud includes the data center – which means the network, the storage, the computers – and it's becoming much more readily available, cloud computing empowers organizations to increase return on investment capital to shareholders by increasing organization profitability. That can be the impact of cloud computing on the average portfolio.