While the technology sector was captivated by an artificial intelligence-fueled surge that propelled the Nasdaq-100 to a remarkable 21% gain in 2025, the once-dominant cloud computing industry found itself conspicuously left behind. This divergence created a significant performance gap, with specialized funds like the Themes Cloud Computing ETF (CLOD) gaining a mere 7% and trailing the benchmark by over 12 percentage points. However, this underperformance does not appear to be rooted in a fundamental weakness within the cloud sector itself. Instead, it suggests a market rotation driven by sentiment, where investors chased AI-related narratives at the expense of other established technology segments. This very disconnect has set the stage for a compelling contrarian thesis, positing that cloud stocks, and by extension the CLOD ETF, are poised for a substantial rebound as market focus inevitably shifts back toward solid fundamentals and attractive valuations.
A Deep Dive into the Investment Vehicle
The Themes Cloud Computing ETF is a targeted investment vehicle launched in December 2023, designed to offer pure-play exposure to this specific technology theme. As a relatively new and small fund, it currently holds approximately $1.3 million in assets under management and features a competitive expense ratio of 0.35%. Its portfolio is heavily concentrated in the information technology sector, which accounts for 73% of its exposure, with a distinct focus on companies operating in cloud infrastructure and software-as-a-service (SaaS). The fund’s holdings represent a diverse mix of industry titans and nimble innovators. Its top positions include mega-cap leader Alphabet at 6.2%, mobile technology firm AppLovin at 5.6%, and enterprise software giant Salesforce at 5.3%. Further down, the portfolio includes foundational hyperscalers like Microsoft, alongside specialized high-growth companies such as CoreWeave, Cloudflare, Datadog, and MongoDB. This strategic composition aims to capture value and growth across the entire cloud computing ecosystem.
To substantiate the argument of a valuation disconnect driven by sentiment, one needs only to look at the divergent performance within CLOD’s own portfolio. Salesforce, the ETF’s third-largest holding, experienced a stock decline of nearly 20% in 2025. This downturn occurred despite the company consistently exceeding earnings expectations for four consecutive quarters, which included a notable 13.6% earnings surprise in its December report. In stark contrast, other cloud-focused holdings within the same fund, such as Snowflake and CrowdStrike, enjoyed significant gains of 44.6% and 39.4%, respectively. This disparity strongly suggests that the market was not penalizing the entire cloud sector for poor operational performance. Rather, it was engaging in a selective, sentiment-driven rotation that unfairly punished certain high-quality assets like Salesforce, creating what many now see as an attractive entry point for investors who believe that strong fundamentals will ultimately command market attention once again.
Examining the Underlying Market Catalysts
The bullish case for the cloud sector is reinforced by several powerful industry trends expected to fuel its growth. A key piece of evidence comes from a forecast by Gartner, which projects that enterprise software spending will accelerate to become the fastest-growing segment of the entire IT market. The research firm anticipates a robust 15.2% growth rate in 2026, pushing the total market size to an impressive $1.43 trillion within the broader $6 trillion global IT industry. This projection provides a strong quantitative basis for optimism, indicating a significant and sustained flow of capital into the very services and platforms offered by the companies within the CLOD portfolio. This is not a speculative trend but a tangible shift in corporate spending priorities, driven by the ongoing digital transformation and the increasing reliance on cloud-based solutions for efficiency, scalability, and innovation across all industries. This macro-level tailwind provides a solid foundation for potential growth.
Furthermore, a critical strategic shift in enterprise AI adoption is serving as a major catalyst for the cloud industry. After many organizations experienced high failure rates and spiraling costs with complex, custom-built AI projects in 2024, there is now a clear and decisive pivot toward purchasing commercial, cloud-based AI solutions and infrastructure. This trend directly benefits the entire spectrum of CLOD’s holdings, from the major hyperscalers like Microsoft’s Azure, Google Cloud Platform, and Amazon’s AWS that provide the foundational infrastructure, to the specialized SaaS companies that deliver ready-to-deploy AI applications. Microsoft’s recently reported 18.4% revenue growth and remarkable 48.9% operating margin, largely driven by its Azure cloud services, stands as a prime example of this dynamic in action. For investors, closely monitoring the quarterly cloud revenue growth figures from these major providers will be a key indicator of whether this accelerated enterprise cloud adoption is materializing as expected.
Weighing the Inherent Risks and Alternatives
Despite the optimistic outlook, any potential investment in CLOD must be weighed against its significant risks. The primary concern is its small asset base of just $1.3 million. This limited size could lead to poor liquidity, making it difficult for investors to buy or sell large share volumes without adversely affecting the ETF’s market price, particularly during periods of high volatility or market stress. A second major risk is its portfolio concentration. With the top 15 holdings accounting for a substantial 57% of the fund, CLOD is exposed to meaningful single-stock risk, where the poor performance of just one or two key companies could have an outsized negative impact on the entire fund. However, this concentration can be viewed as a double-edged sword; it is the very factor that could allow the fund to react swiftly and decisively, potentially generating outsized returns when positive sentiment and capital flow back into the cloud sector’s leading names.
For investors who find the risk profile of CLOD too aggressive, the WisdomTree Cloud Computing Fund (WCLD) presents a more established and conservative alternative. WCLD boasts a much larger asset base of $290.6 million, which offers significantly better trading liquidity and stability. Having launched in September 2019, it also has a longer performance track record for investors to evaluate. Its portfolio is considerably more diversified, spread across over 60 holdings, and it utilizes an equal-weighting methodology. This approach reduces single-stock risk by preventing a few large companies from dominating the fund’s performance, providing a more balanced exposure to the broader cloud industry. The trade-off for these benefits is a slightly higher expense ratio of 0.45%. WCLD serves as a compelling option for those who are bullish on the cloud computing theme but prefer a strategy that prioritizes diversification and lower volatility over concentrated, high-conviction bets.
A Forward-Looking Perspective
The investment thesis for CLOD had been framed as a high-conviction, concentrated bet on the resurgence of the cloud computing industry. The success of this strategy depended entirely on two pivotal factors materializing during the year: a clear confirmation of strong enterprise software and cloud infrastructure spending growth, in line with forecasts from firms like Gartner, and a corresponding rotation of investor sentiment back toward cloud fundamentals and away from the previous year’s speculative fervor. Had these conditions been met, CLOD’s strategy of holding quality cloud companies that were trading at sentiment-driven discounts could have resulted in outsized returns for its investors. The key indicators that were monitored to validate this thesis included enterprise spending data, quarterly revenue reports from key hyperscalers, and CLOD’s own ability to attract new assets and improve its trading liquidity.
