Strategic investments in cloud migration, cloud-native projects and related cyber and machine learning services deliver outsized impact on market valuation and shareholder returns, according to a Deloitte report published Tuesday. The consulting firm analyzed the financial statements and technology spending of more than 4,500 companies over a 10-year period.
Spending on cloud acts as a force multiplier, the report found, adding long-term value to investments in automation, cyber, IoT and other individual technologies. Cloud investments yielded roughly three-times the market value compared to cyber investments alone, the analysis found.
Cloud is a handy valuation metric, according to David Linthicum, Deloitte’s chief cloud strategy officer. Companies adopting cloud are likely to be engaged in broader digital transformation, systems modernizations and innovation, signaling healthy growth potential to investors, Linthicum said.
As CIOs reach for levers to encourage boardroom buy-in on cloud investments, the markets can be a strong ally.
Investors react positively to cloud adoption, the research found. Platforms enabling enterprisewide information flow have the strongest positive correlation with market cap, compared to other tech categories, and investors consistently reward companies for cloud adoption.
“We’re almost 15 years into the cloud and people are now understanding that investment in that technology is going to breed huge ROI over time,” Linthicum said.
Quarter-to-quarter earnings remain an important benchmark, but investors are looking beyond immediate returns and eyeing the transformative power of technology. Cloud is the foundation on which successful businesses build out other technological capabilities, creating a virtuous circle of innovation.
“It’s table stakes over everything you do,” Linthicum said. “If you’re going to digitally transform, whether it's with AI, deep analytics or the integration of various systems, 98 times out of 100 it’s going to occur in the cloud.”
Deloitte also analyzed the impact of blockchain and IoT, capabilities that add value but are rooted in, and enabled by, cloud compute.
Spending on technology alone wasn’t a differentiator, according to the report. Strategic investments were the catalyst driving investor enthusiasm.
Comparable companies of roughly the same size, with similar revenue, had significantly different market valuations depending on how they invested in technology, Deloitte found in a January report.
“The leaders in the market were spending about the same amount of money on technology as the non-leaders,” Linthicum said.
Success was marked by three characteristics, the report found:
- Maturity, or the extent to which an enterprise has modernized away from legacy technologies.
- Integration, or the extent to which the organization has brought together a class of related, functional technologies.
- Innovation, or the extent to which a company has mastered specific transformative technologies, such as cloud, AI and cyber.
Another factor to consider, according to Linthicum, is the shift toward a cloud-centered organizational culture.
“I always tell my clients that I can solve anything with technology,” Linthicum said. “That’s easy to do. People, processes and culture are the tough part. That's the real battleground.”
