Comparing CLOU and SKYY: A Growth Investor's Guide to Cloud ETFs

The investment case for cloud-focused ETFs rests on a powerful, multi-decade trend. The market is not just growing; it is undergoing a fundamental, irreversible shift in how businesses operate. The numbers paint a picture of immense scale and acceleration. In 2025, the global cloud computing market was valued at USD 943.65 billion. More importantly, it is projected to reach USD 3,349.61 billion by 2033, expanding at a CAGR of 16.0% over that period. This isn't a niche play. It's the backbone of the digital economy, and its growth is being turbocharged by artificial intelligence.

The sheer size of the opportunity is matched by the vast untapped potential. Despite the market's scale, adoption remains in its early innings. According to recent analysis, only about 30% of workloads have moved to the cloud. This leaves a massive pool of legacy systems, data centers, and applications still operating on-premises. For growth investors, this is the core thesis: the market is not saturated. It is in the midst of a multi-year migration, creating a sustained tailwind for cloud providers and the ecosystem around them.

The most potent catalyst for the next phase of growth is generative AI. The technology is not just an add-on; it is a fundamental driver that is expanding the total addressable market. Goldman Sachs Research forecasts that generative AI is forecast to account for about 10-15% of the spending. That translates to a potential addition of $200 billion to $300 billion to the cloud TAM by the end of the decade. This isn't speculative. It's a direct consequence of AI's insatiable demand for compute power, data storage, and flexible infrastructure-all of which are the core offerings of cloud platforms. The shift from infrastructure-heavy spending to broader platform and application layers will further compound growth.

For an ETF like CLOU or SKYY, this sets up a compelling investment narrative. The underlying assets are positioned to capture not just the steady migration of workloads, but the explosive, AI-driven expansion of the market itself. The TAM is enormous, the adoption curve is steep, and the AI tailwind is just beginning to blow. This is the secular backdrop against which these ETFs will compete.

CLOU's Approach: Unconstrained Breadth for Market Capture

For a growth investor, the path to capturing the full cloud opportunity often lies in an ETF that doesn't limit itself. CLOU takes this philosophy to the extreme. Its portfolio is built on a precise, unconstrained blueprint: it holds 37 stocks. This concentrated basket is designed to deliver pure, focused exposure to the cloud theme, leaving behind the noise of broader tech funds.

The fund's construction is guided by a modified theme strength-weighted methodology. The underlying index scores companies based on their involvement across the cloud stack-Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS). This approach aims to overweight the players most deeply embedded in the growth drivers. In practice, that often means tilting toward established giants like Amazon and Microsoft, whose cloud divisions are already massive revenue engines. While this provides a direct link to proven market leaders, it also means the fund's performance is heavily tied to the fortunes of the cloud sector itself. CLOU is a non-diversified fund, which amplifies both its growth potential and its cyclical risk. If the cloud market faces a downturn, the concentrated portfolio will feel it more acutely than a broader basket.

This strategy is a bet on market capture. By focusing on the 37 companies with the strongest cloud exposure, CLOU aims to ride the wave of the massive TAM expansion we outlined earlier. It offers a streamlined way to participate in the migration of workloads and the AI-driven compute boom, without the need to pick individual winners. For investors seeking a pure-play, high-conviction bet on the cloud's secular rise, CLOU's breadth is its strength. It provides a direct conduit to the sector's growth, albeit with the inherent volatility of a concentrated, non-diversified position.

Comparison: CLOU vs. SKYY - Breadth vs. Focus

For a growth investor, the choice between CLOU and SKYY comes down to a classic trade-off between concentration and diversification. Both ETFs offer exposure to the massive cloud growth story, but they do so with strikingly different strategies. The first point of parity is cost: both funds charge a 0.01% expense ratio. This makes fees a neutral factor in the decision, shifting the focus entirely to their underlying construction and the growth potential each approach unlocks.

The most visible difference is in portfolio size. CLOU holds a tightly focused basket of 37 stocks. This is a deliberate, unconstrained approach that aims to capture the purest expression of the cloud theme. By not limiting itself to a specific sector or region, CLOU's strategy is to include both established giants and innovative newcomers. This can be a powerful engine for growth, as it gives the fund direct access to the next wave of cloud disruption. In contrast, SKYY takes a more defined path with 64 holdings. This broader diversification across a larger number of companies can provide a smoother ride through market cycles, potentially reducing the volatility that comes with a concentrated portfolio.

This leads to the core strategic trade-off. CLOU's unconstrained, concentrated model is a high-conviction bet on market capture. It aims to maximize exposure to the fastest-growing cloud companies, which could translate into higher growth potential if the fund's picks outperform. However, this comes with the inherent risk of a non-diversified position. SKYY's broader approach, while still focused on cloud, offers a more balanced profile. It spreads risk across a wider set of names, which may provide greater stability during periods of sector rotation or when specific cloud sub-segments face headwinds.

For the growth investor, the decision hinges on appetite for volatility versus the desire for pure, concentrated exposure. CLOU's strategy is built for those who believe the biggest cloud winners will come from a wide field of players, including disruptive newcomers. SKYY offers a more measured path, capturing the sector's expansion while dampening the impact of any single stock's misstep. Both are positioned in a massive, AI-powered market, but they represent different philosophies for navigating it.

Growth Metrics and Forward Catalysts

The strong near-term momentum for CLOU is a clear signal of market conviction. Year-to-date, the ETF has delivered a 12.46% return, outperforming the broader market and validating the strength of its concentrated, unconstrained approach. This performance isn't just a snapshot; it's a leading indicator of the structural shift that will drive financial outcomes for years to come.

The most critical catalyst is the massive, multi-year reallocation of IT budgets. Cloud's share of total IT spending is forecast to surge from an estimated 15% in 2023 to 40% by 2030. This isn't a minor trend; it's a fundamental reprioritization of corporate capital. For the underlying companies in CLOU's portfolio, this means a sustained, multi-year revenue surge as enterprises migrate legacy systems and data centers. The growth isn't speculative. It's a direct consequence of the AI boom, which is projected to account for 10-15% of cloud spending, adding hundreds of billions to the market's size.

The forward-looking events that will validate and accelerate this thesis are now unfolding. The first is the quarterly updates from major cloud providers on AI service adoption. These reports are becoming the new barometer for growth, moving beyond traditional infrastructure metrics to measure the monetization of AI platforms and services. The second key catalyst is the pace of enterprise workload migration. As more businesses move from on-premises to cloud environments, the revenue base for providers expands. Recent analysis shows only about 30% of workloads have moved to the cloud, highlighting the vast runway ahead. Each quarter that migration accelerates is a vote of confidence in the long-term growth trajectory.

For a growth investor, the setup is clear. The ETF's strong YTD return captures the initial wave of this shift. The structural tailwind of cloud's rising share of IT budgets provides the multi-year runway. And the quarterly catalysts-AI adoption metrics and migration data-will serve as the real-time validation that the massive TAM is being captured. The focus now is on monitoring these forward signals to gauge the pace of the multi-decade migration.

Risks and Investment Considerations

For all its promise, the cloud growth thesis is not without guardrails. The path to capturing the massive TAM is fraught with potential pitfalls that could derail the sector's expansion and, by extension, the performance of a concentrated ETF like CLOU.

The most critical risk is a slower-than-expected materialization of AI-driven cloud spending. While the forecast is bullish, with generative AI poised to account for about 10-15% of cloud spending, this investment is still broadening out. If the projected $200 billion to $300 billion in AI-related cloud spending fails to materialize on schedule, it would directly decelerate the sector's growth rates. The entire narrative of an AI-powered expansion of the TAM hinges on this spending surge. Any delay or shortfall would pressure revenue forecasts for the underlying companies and could cool investor enthusiasm.

The ETF's performance will also be sensitive to broader market dynamics. CLOU is a non-diversified fund, which amplifies its exposure to the tech sector as a whole. A shift in market sentiment away from technology stocks could pressure returns even if the cloud market itself continues to grow. The recent surge in cloud stocks has been closely tied to the broader tech rally, particularly around AI infrastructure. If that momentum fades, the concentrated portfolio would likely feel the impact more acutely than a more diversified fund.

This brings us to the core strategic trade-off for investors. CLOU's unconstrained, concentrated approach offers the potential for higher growth by directly targeting the fastest-moving cloud companies. However, this comes with the inherent risk of a non-diversified position. In contrast, SKYY's broader diversification across 64 holdings provides a more balanced profile, spreading risk and potentially offering greater stability during periods of sector rotation. The choice is between maximizing potential upside with higher volatility or seeking a smoother ride with a more measured growth profile.

For the growth investor, the key is to monitor the forward catalysts-the quarterly updates on AI adoption and the pace of enterprise workload migration. These signals will provide the real-time validation needed to assess whether the massive TAM is being captured as expected. Any signs of deceleration in these areas would be a red flag, underscoring the need for disciplined risk management in a sector that remains exposed to both technological adoption timelines and broader market flows.