Hashicorp: A Game on the Growth of Cloud Computing – Nanalyze

There are a handful of investment themes that almost demand participation because the potential opportunity is so great. Anyone Ttotal Awearable mmarket (TAM) upwards of $500 billion deserves some attention because it’s simply too big to ignore. NVIDIA believes AI chips represent a $600 billion TAM and last year captured less than 5% of that opportunity. Even if the TAM is half of what is estimated, there is still a lot of upside. Similarly, spending on cloud computing is expected to eclipse $1 trillion by 2026, up from a $500 billion TAM today.

Our recent piece on Investing in cloud computing. Any growth left? presented a compelling case for gaining greater exposure to the growth of cloud computing that has only been accelerated by the emergence of StOften-AS-AStservice (Saas) companies that offer solutions through the cloud. So when we came across a SaaS company offering solutions for the three largest cloud hyperscalers, our ears perked up.

Introducing Hashicorp

Technology gets complicated very quickly, so the challenge in introducing new technological solutions is to explain things in a way that is simple enough so that both experts and novices find the interpretation enjoyable. With that in mind, take a look at the diagram below which shows the key features for the three largest hyperscalers.

Credit: Hashicorp

Every company has applications that can reside in private data centers (headquarter) or in the cloud. These applications need to communicate with each other (Connect) and must be protected in such a way that malicious people cannot infiltrate (Safe). Meanwhile, developers and operations engineers must deploy application updates and configure new hardware as needed (disposition). If you’re running the three largest hyperscalers, along with on-premise applications, that translates into twelve different connection/security/provisioning methods (see diagram above). The job of managing all of these tasks belongs to a platform team within an organization who are tasked with providing shared infrastructure, runtimes, and other services used by developers across the organization. The name of this team may vary depending on the organization, but the functions remain the same as well as the ultimate goal to distribute applications seamlessly between cloud service providers in a secure way.

Centralized cloud functions (for example, cloud centers of excellence [CCoE]platform teams) are responsible for standardizing cloud services (87%), creating operational policies (86%) and centralizing security (85%).

Credit: Forrester

Whether a CCoE team, platform team, or DevOps team, this group is tasked with standardizing an organization’s approach to cloud computing across all applications. So if you are moving applications to the cloud (who isn’t?) and you’re using multiple clouds (60% of organizations are), so a consistent approach across all cloud service providers makes life easier.

Today, 60% of technology professionals and decision makers surveyed use multicloud. Over the next 12 months, that number will rise to 81%. A majority of respondents (90%) say it is helping them achieve business goals.

Credit: Forrester

Your organization shouldn’t need a different team for every cloud service provider. Going back to the diagram above, see how each cloud provider offers different tools for connection/security/provisioning? This is where Hashicorp (HCP) makes things easy with three core solutions that work with all major vendors, including your on-premise applications.

Credit: Hashicorp

So, let’s review. Most companies are moving to multicloud because it helps them achieve business goals. As a result, companies are building platform teams or cloud centers of excellence to manage the complexity. To reduce complexity, they’ll look for a single solution that works across all major operational functions of a given cloud provider (connection/security/provisioning). That’s when Hashicorp enters the scene with a SaaS platform that reduces complexity and consequently costs.

Trends drive Hashicorp

We talked about how spending on cloud computing will double to surpass a trillion dollars by 2026. Organizations are not only moving more applications to the cloud, they are also adopting more providers. chief Ttechnology ORofficers (CTOs) will try to compensate for this additional complexity by using vendors that offer multiple solutions under the same umbrella. Supplier consolidation is a common theme during cost reduction initiatives and Hashicorps net retention rate will be a key metric to watch for stickiness testing.

Credit: Hashicorp

We expect customers to reduce spend during a recession, but that decline should be offset by customers consolidating vendors and expanding their use cases with Hashicorp, thereby increasing spend. The firm’s investment deck highlights three examples of the journey from open source to commercial for large clients:

  • The customer adopts the open source solution and has been using it for several years
  • Customer starts using commercial subscription measured in hundreds of thousands per year
  • Four years later, the client is spending more than $10 million a year

Since Hashicorps offerings are based on an open source architecture, we believe this helps increase adoption in a given development community. That’s because it’s the development community that helps maintain and refine these solutions over time, so they quickly adapt to the ever-changing needs of the industry. Furthermore, commercialized opensource technologies inherently become freemium business models that easily attract leads who sign up after they see that the technology sufficiently addresses the pain points of the organization.

Investing in Hashicorp

Hashicorp has the hallmarks of a solid SaaS company with a history of growth that should enjoy headwinds come good or bad times. As with any SaaS title, it’s about paying a reasonable price for the exposure to the growth you’re getting. Let’s start by looking at the Stimplement vassessment Raction (SVR) for some famous disruptive technology SaaS companies.

SubcategoryResource nameMain tickerSimple evaluation report
Storage of large amounts of dataSnowflake IncTO SNOW21
Cyber ​​securityCrowd hitCRWD extension11
Cloud ComputingHashiCorpHCP extension10
MetaverseConfluentCFLT extension10
Enterprise AIPalantirPLTR8
Robotic automation of processesUiPathPATH6
Geospatial IntelligencePlanetPL5
Legal TechDocumentSignDOCU4
Credit: Nanalize

The companies above are all leaders in the niches they operate in, so the breadth of their product offerings typically extends beyond the original value proposition. Think about how Crowdstrike segmented their product offering into modules, then report the number of customers who adopted more than five modules (62% of their customers). Higher adoption helps ensure stickiness and makes it easier for Crowdstrike to weed out niche vendors with adjacent offerings. This is exactly the same appeal that Hashicorp has, only they are a bit more verbose when describing it. They sell multiple solutions to a corporate decision-making team that helps them get signatures faster and pitch potential vendor consolidations.

Each of these SaaS companies has set annual revenue guidance goals (more likely) for the first time since the start of the recession. Management teams that see their solutions benefiting from cost-cutting initiatives like on-premises migrations to the cloud or robotic process automation for back office roles are likely to continue to expect growth resembling what they could achieve during good times. Those who see headwinds as having a downside (or even uncertain) impact may proceed with caution in providing guidance.

Resource nameLatest YoY growthOrientation for next yearSimple evaluation report
Snowflake Inc70%40%21
Crowd hit54%33%11
Credit: Nanalize

The only SaaS company in the above list to increase revenue guidance in the face of today’s macroeconomic headwinds is UiPath, while the others expect growth to stall. This exception is intuitive, because UiPath uses automation to reduce staffing needs and save companies money. SaaS solutions that benefit from vendor consolidation or save money in other ways are likely to surprise investors (and management) as they see more resilient revenue growth throughout 2023 leading to increased or exceeded guidance. Those companies that underestimate economic headwinds will present better buying opportunities as their stock prices adjust to Wall Street’s high expectations.

Would-be investors in Hashicorp can enjoy above-average growth for a slightly above-average valuation of peers. Despite operating losses of $290 million for each of the past two years, Hashicorps’ gross margins are up 80%, meaning profitability can easily be in sight any time they want to start chopping heads. About $1.3 billion in cash means they have about 4.5 years of runway remaining, plenty of time to turn the ship to profitability.


Businesses are moving to the cloud and it’s not just a cloud service provider. As macroeconomic headwinds hit organizations, CTOs are under pressure to cut costs, reduce complexity and streamline suppliers. The Hashicorps solution addresses all of these trends and the company’s current valuation is in line with the average SaaS in our portfolio. For us, there’s a concern about size here as we were already overweight small and mid-sized companies, but that’s also a function of how depressed valuations are across the board. We also need to consider opportunity costs as our portfolio of 36 tech stocks has only four empty slots remaining.

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