This Cloud Computing Subsector Has Huge Potential: 2 Stocks to Buy Before the Boom – Motley Fool

In the coming years, as billions of new Internet of Things devices are connected, edge computing will become increasingly necessary to ensure a fast, secure digital experience for end-users (and devices). This huge computing trend is a big reason why tech companies like Fastly (NYSE:FSLY) and NVIDIA (NASDAQ:NVDA) look like good stocks to own in what has become a booming market.

Let's find out some more about these two edge-computing cloud stocks and why they have such huge potential.

In the world of cloud computing, data storage and processing power have generally been provided by massive server farms in data centers. Your local device doesn't have to do the heavy lifting -- but the strategy puts more strain on the communications network, and while you may not notice often, sending all the data back and forth does take time.

Image source: Getty Images

Edge computing changes the paradigm up a bit, locating the servers that process and store data and applications as close to the end-user as possible. And much like cloud computing, it has the potential to transform virtually every industry.

Processing data at the network edge improves response time, meaning websites load faster and applications run more quickly. It also improves information security because sensitive data can be processed relatively locally. Finally, by reducing the amount of data that is relayed back to central clouds, edge computing reduces costly bandwidth and storage requirements for enterprises.

But how can these two cloud stocks take advantage of this?

Fastly's edge cloud platform is a network of data centers strategically positioned near internet exchange points around the globe. This puts its powerful servers in closer physical proximity to the people and companies using them. That matters for a couple of reasons.

First, large numbers of businesses are more reliant than ever on their ability to provide consumers with smooth, enjoyable digital experiences. According to research by Alphabet's Google, 53%of mobile users will leave a website that takes longer than three seconds to load. What's more, 46% of users never return to a poorly performing website.

That's why companies like fuboTV and Shopify use Fastly's edge cloud platform to deliver streaming media and web content. It helps these enterprises ensure a fast, reliable experience for customers, even when traffic spikes or content changes quickly.

But Fastly's platform also allows developers to build and run applications at the edge of the internet. This is more involved than simple content delivery, and it's especially critical in time-sensitive scenarios like video games or certain IoT applications.

For instance, imagine an array of IoT devices that monitor a manufacturing facility. If something goes wrong and machinery needs to be shut down, a few milliseconds difference in response time could make the difference between a non-event and a catastrophe.

Fastly's management sees a near-term annual market opportunity of $35.4 billion. But edge computing use cases are still emerging. As this industry evolves, I believe Fastly could be a big winner for patient investors.

In machine learning, massive quantities of data are used to train artificial intelligence algorithms. Once trained, those AI models can be deployed in edge devices for predictive decision-making. And NVIDIA's EGX AI platform provides the computing horsepower needed to make that happen.

Image source: NVIDIA.

NVIDIA's EGX AI platform is a complete solution that allows enterprises to build, deploy, and manage AI applications. It includes DGX servers used to train AI algorithms in the cloud, EGX servers used to deploy those trained models at the edge, and embedded Jetsonsystems used to power autonomous machines and robots.

NVIDIA also provides pre-trained models and software solutionsthat greatly simplify the process. For instance, NVIDIA's Metropolis platform enables developers to build AI applications that improve retail inventory management, enhance loss prevention efforts, and simplify the checkout experience for consumers. That's a big deal -- according to research firm McKinsey, the use of AI could improve retail profit margins threefold, which would add $1 trillion in profit to the industry as a whole.

As a practical example, Walmartuses NVIDIA's tech to manage employee workflow, and to ensure the freshness of meat and produce in certain stores. Likewise, BMW uses NVIDIA's edge AI solutions to automate optical inspections in its manufacturing facilities. And China Mobile, which operates the world's largest wireless network, uses NVIDIA's platform to deliver AI capabilities over 5G networks. But the potential is virtually limitless, from AI-powered smart cities and logistics to self-driving cars and autonomous drones.

NVIDIA's management estimates the addressable market for its edge AI solutions at $15billion by 2024. And ifNVIDIA's acquisition of chipmaker ARM is approved, that number jumps to $75 billion by 2023. Regardless, its brand name is synonymous with high-performance computing, and the company should be able to capture a large portion of the market.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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This Cloud Computing Subsector Has Huge Potential: 2 Stocks to Buy Before the Boom - Motley Fool