The unexpected coronavirus outbreak in 2020 had a crippling effect on most industries worldwide. However, digitization grew at a breathtaking pace, with businesses rapidly changing how they operate. Accordingly, with many enterprises transitioning to a remote working model, cloud computing companies took center stage and enjoyed tremendous returns in the stock market. Though the pandemic is in the rear-view mirror, there are plenty of cloud stocks to buy for investors looking to gain exposure to this fast-growing market segment.
While the stock market has been tumbling as of late, this bearish price action presents an interesting opportunity for investors to discover hidden gems in certain industries. Many investors had been looking for cloud computing stocks to buy drying the pandemic. Indeed, during this period, most companies saw their valuations surge higher. However, with stocks across this sector taking a major beating this year, valuations are now more attractive.
With this in mind, let’s take a look at seven of the top cloud stocks investors should consider for the long-term.
|CLOU||Global X Cloud Computing ETF||$16.21|
First on this list of top cloud stocks is Salesforce (NYSE:CRM), a revolutionary cloud computing company. Salesforce provides businesses with a one-stop-shop for all CRM, marketing, commerce, analytics, and data visualization needs. It’s the world’s largest cloud-based customer relationship management platform, providing innovative solutions with great flexibility to its corporate clients.
Notably, Salesforce has been incredibly successful in locking in large organizations with its sticky subscription-based model. The company’s tailored services, driven by acquisitions of smaller firms over the years in related fields, has allowed Salesforce to grow to its market-leading size in the cloud sector.
From a fundamentals perspective, there’s also a lot to like. Salesforce boasts a superb track record of growing its top and bottom-lin. However, this year’s results have been sub-par, with sales growth slowing down in the first three quarters. The rising dollar and the economic slowdown worldwide limited expenditures on big software deals. Despite the slowdown, the company expects revenue growth of 17% this year, with a 3% bump in earnings per share. Moreover, its long-term goal of generating $50 billion in annualized sales by fiscal 2026 remains firmly intact.
Twilio (NYSE:TWLO) is a leading cloud-based communications software company, attracting the attention and investment of some of the world’s largest firms. Despite the myriad global economic challenges this year, Twilio will continue to grow rapidly near its impressive historical averages for the foreseeable future. Additionally, it’s expected that this growth will lead to the company achieving profitability by next year. Amazingly, Twilio stands out in an increasingly competitive arena due to its excellent track record of making smart investments, as well as providing technological innovation and quality services.
That’s not to say that TWLO stock hasn’t been hit hard by this macro environment. The company’s stock price has taken a colossal beating in the market over the past 12 months. This correction in price has created a superb entry point for investors bullish on a potential breakout next year. Accordingly, those intrigued by the company’s enviable liquidity position may want to take a stab at this cloud player. The company ended its most recent quarter with $4.4 billion in cash compared to just $1 billion in debt.
Global X Cloud Computing ETF (CLOU)
One of the best ways for investors to gain highly-diversified and low-cost exposure to any sector is to go with an exchange traded fund (ETF). The Global X Cloud Computing ETF (NASDAQ:CLOU) provides investors with excellent diversification to top cloud computing companies at a very reasonable cost. This ETF’s portfolio of leading cloud and software businesses that have performed exceedingly well in recent years is available at an expense ratio of only 68 basis points per year (0.68%).
Tech stocks have been hammered this year, hitting this ETF and others like it hard. Additionally, U.S.-based companies form a major component of the ETF, predominantly in the information technology sector. Naturally, with the market downturn this year, CLOU stock shed a ton of value and trades near multi-year lows. However, this ETF’s exposure to high-growth companies at record-low prices presents an attractive bet for long-term investors right now.
Shopify’s (NYSE:SHOP) cloud-based platform gives businesses access to powerful tools to build robust, feature-packed online stores. Moreover, the company offers businesses unlimited scalability, providing options to add various functionalities as needed. No wonder Shopify is the go-to choice for businesses looking to start or expand their online presence.
Shopify had a difficult year in 2022, but investors should look at the company’s third quarter as reflective of some pretty remarkable improvements. Its revenue and gross merchandize volume (GMV) numbers were up, and its loss per share came in lower than expected. Moreover, Shopify’s performance during Black Friday was a smashing success, with $3.36 billion in sales recorded.
These results were the best on record, surging an impressive 17% from the same period last year. Despite the challenges of this past year, Shopify is still riding an immense wave of growth. Thus, for those looking ahead to more successful years to come, this is one cloud stock to consider.
Adobe (NASDAQ:ADBE) is a leader in the digital media space, which is largely transitioning its services to the cloud. Adobe is no different, providing a suite of cloud platforms which include the Creative Cloud, Document Cloud, and Adobe Experience Cloud.
Notably, all of these business segments boast stellar margins. Looking forward, it’s the company’s exposure to the cloud that positions Adobe well to expand margins as fast as the company is seeing top-line growth.
The increased digitization seen in the advertising, entertainment, and content-creation markets should benefit the firm for years to come. While there are concerns over Adobe’s overdependence on cloud platforms, the transition to the cloud is inevitable for most companies. This boosts Adobe’s long-term bull case significantly. At the time of writing, ADBE stock trades at around 9 times forward sales, roughly 35% lower than its five-year average. Hence, this stock provides a favorable risk-reward profile for long-term investors right now.
Fastly (NYSE:FSLY) operates as one of the leaders in the content delivery network space, facilitating secure access to some of the most popular websites worldwide. It operates a sticky subscription model with a retention rate of over 100%.
Recently, Fastly announced that it would be foraying into the cloud and cybersecurity space, two of the most lucrative tech verticals. With its success in the CDN market, I think Fastly can effectively leverage its abilities and carve out a strong position in the sector.
The company has recently appointed a new CEO, Todd Nightingale, to penetrate the cybersecurity and cloud markets. So far, the results have been remarkably encouraging, with strong top and bottom-line growth surpassing analyst estimates. The bottom line: long-term investors should be on Castle’s ability to effectively piggyback on the success of its CDN business and invest in its fast-growing cloud computing business.
Rounding out this list of cloud stocks to buy is Datadog (NASDAQ:DDOG), a company that’s at the forefront of cloud-scale applications designed to streamline heavy workloads effectively. With its innovative technology and intuitive user interfaces, Datadog’s solutions give teams a decisive edge in dealing with massive data sets.
Long-time customers have trusted the platform to provide scaling solutions with a quick turnaround time. The ability for data dog to provide back-end solutions that scale, but also leverage the private environment and hyperscaler support, is something to be considered. Indeed, Datadog is considered a leading player in the overlap between cybersecurity and the cloud, providing many growth investors with a clear and enticing thesis moving forward. Accordingly, the company boasts a spectacular long-term growth runway.
Datadog also boasts an impeccable track record of revenue growth, with more than 78% year-over-year growth in sales during the past five years, on average. Despite the impressive macro headwinds this year, its sales growth has averaged 74%. Though Datadog is still struggling to maintain profitability at this time, all future estimates point to double-digit expansion in earnings ahead.