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Cloud Computing Stocks: Who Will Win the Storage Wars?

Google (GOOG) launched its Drive cloud-based storage software in 2012 to great fanfare. And while Google Drive had serious potential to disrupt cloud computing stocks two years ago, it’s even more of a threat in 2014.

google drive goog stockGOOG announced Thursday it would cut cloud storage pricing through Drive, offering 100 gigabytes of storage for just $1.99 monthly – down from $4.99. Google also will offer 1 terabyte of storage for just $9.99 — down dramatically from $49.99 previously.

The bottom line for consumers: Google now offers more storage than cloud storage competitors, and at a cheaper rate. 

The bottom line for investors: Recent IPO candidates Box and Dropbox look far less attractive now that Google has decided to become the leading cloud computing stock.

Now, Google won’t cause either of these up-and-coming cloud players to go bankrupt overnight. As Henry Blodget recently told Yahoo Finance, the price cut shouldn’t cause too much disruption because “lots of people are already on Dropbox and Box and switching is a pain.” He adds that Dropbox also works on any platform, while Google Drive is tied to its Android mobile operating system, so Dropbox gives consumers more flexibility.

However, it’s undeniable that competition is fierce right now — and not just between GOOG stock and recent IPO candidates, but also with the big guys like Microsoft (MSFT) and its OneDrive cloud storage (previously SkyDrive). You can bet Microsoft will look to compete pound-for-pound with Google, and cash-rich companies like MSFT and GOOG will undoubtedly create big issues for upstarts looking to compete now on both service and price.

So what’s the play in cloud computing stocks if you’re an eager investor?

Well, since GOOG stock is heavily dependent on advertising still, I wouldn’t expect Drive to move the needle. And since Box and Dropbox are nothing but potential, as they aren’t public yet, you can’t invest in them (even if you wanted to look past the lack of long-term earnings history).

To me, the best play is likely not in the cloud computing stocks that offer access, but the data storage and solutions companies that actually have a stake in the remote servers where all this information has to live.

One hot play right now is Digital Realty Trust (DLR), a REIT that leases data centers and boasts a 6.5% yield. It’s a great way to get a high-yield dividend stock while also playing the cloud computing revolution.

Another option are software companies that help manage datacenters or maximize performance, including small-caps Infoblox (BLOX) and Fusion-io (FIO).

Now, DLR, BLOX and FIO have all underperformed in the last year as very high expectations haven’t been met with impressive results like some had planned. But it’s undeniable that remote storage is the way of the future, and these cloud computing stocks are going to be big players in the years ahead.

It’s hard to be patient in tech, but changes to Google Drive pricing prove just how fast-moving cloud computing stocks are. After all, GOOG stock investors didn’t even consider Drive as part of the equation two years ago.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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