The cloud computing industry was worth $266 billion in 2019. Markets and Markets projects It will be $832 billion by 2025.
Two-hundred and twelve percent is a lot of growth in five years.
Today, we’re going to show you the best cloud stocks to buy as this industry erupts.
Investing in cloud stocks might seem tricky at first. The “cloud” concept can seem too vague or broad to categorize.
But with so many cloud companies that deal exclusively in cloud solutions, investors can’t afford to overlook these stocks any longer.
Yes, a cloud stock can be many things, depending on the company. But it’s still an important distinction.
This market is measurable and competitive. And it can be highly profitable if you know where to put your money.
We’ll show you some of the best cloud stocks to invest in right now. First, here’s why the industry has so much potential.
What Makes a Cloud Stock Soar?
The cloud is anywhere an Internet server can reach. It almost literally refers to a “cloud of information.”
Any company that has a collection of servers that provide some kind of paid function to its customers can be called a cloud stock.
That’s what makes it such an interesting market. The cloud can be used for so many things. You can have a cloud that stores financial information, for customers to access from anywhere.
You can have a cloud-based cybersecurity solution to protect that information. You can build cloud-based software to improve that security.
Cloud computing is so revolutionary because software no longer needs to live on a local hard drive. You don’t even need to download software to get the solutions you need. You can simply log in.
That makes the possibilities limitless.
A cloud solution can be software as a service (SaaS), platform as a service (PaaS), or infrastructure as a service (IaaS), depending on the function it serves.
That is, companies or individuals can subscribe to cloud-based software. Or they can run cloud-based platforms to support their business. Or, at a deeper level, a whole enterprise can run on a cloud infrastructure service.
Some businesses run their whole enterprise on cloud software. According to Cisco Systems Inc. (NASDAQ: CSCO), 75% of all cloud workloads could be SaaS by 2021.
That will only increase with time as we’re introduced to new software and tools to improve our lives. Cloud providers could eventually form the foundation of our economy.
The definition of “cloud stocks” will even expand as more companies go digital.
The most common use of cloud computing right now involves Big Data and AI. With the cloud, companies can store massive troves of data and run the demanding machine learning software needed to analyze it. This was a fantasy for most companies just a few years ago.
But that’s just one example. The list of top cloud stocks you’ll find here is fairly diverse. And that is a good thing for investors.
These are the first cloud computing stocks you should consider for your cloud portfolio.
No. 1: Microsoft Corp.
As far as cloud stocks to buy and hold, Microsoft Corp. (NASDAQ: MSFT) could be the biggest no-brainer. Among many other things, it is a major worldwide cloud infrastructure provider.
Its Microsoft Azure Cloud has been a raving success around the world, with 85% of Fortune 100 companies using its cloud as of 2019.
Microsoft shares 31% of the total cloud infrastructure services market. That’s compared to the 33% controlled by Amazon Web Services from Amazon.com Inc. (NASDAQ: AMZN).
The company won the coveted JEDI contract from the Department of Defense last year, though the win is being disputed by Amazon.
But regardless of how they split the contract, the Microsoft cloud gets 40% of its revenue from new startups – as long as new companies are springing up, it will remain competitive.
Shares are looking good at $214 right now.
No. 2: Salesforce.com Inc.
Salesforce.com Inc. (NYSE: CRM) is a more specific example of platform as a service, called customer relationship management (CRM). It is a popular cloud software that organizations use to manage customer information.
As “The World’s No. 1 CRM Platform,” Saleforce boasts over 150,000 customers, ranging from small to large companies in public and private sectors.
This is seen as another top cloud stock to buy as Big Data and analytics become increasingly important to customer relationships.
Salesforce has increased revenue by 117% since 2017. It broke the $1 billion mark in profits in 2019, and it’s not slowing down.
You can buy shares for $202 right now.
No. 3: Twilio Inc.
You ever tap the “call” button on a website from your smartphone to have your phone immediately dial the number? Twilio Inc. (NYSE: TWLO) makes that happen.
While our first two cloud computing stocks offer more comprehensive services, this is a top cloud stock for the opposite reason. It’s specialized.
This is yet another example of cloud infrastructure.
Twilio provides more than 50,000 companies with an application programming interface (API) that allows them to reach customers through a range of call, text, and other communication apps.
Its customers include Dell Technologies Inc. (NYSE: DELL), Lyft Inc. (NASDAQ: LYFT), and American Red Cross. Revenue has more than doubled from $650 million to $1.2 billion in the last three years.
You can buy shares today for $282.66.
No. 4: International Business Machines Corp.
International Business Machines Corp. (NYSE: IBM) is a New York–based multinational tech company. Founded in 1911, this is one of the original tech stocks and an Internet pioneer.
Today, it does everything from artificial intelligence to blockchain, data and analytics, and yes, cloud computing.
It’s struggled to consistently grow profits through the 2010s. But it’s quickly adapting to the new tech landscape. It has been making some headway in the cloud market.
In 2019, IBM bought one of the world’s leading software companies, Red Hat, for $34 billion.
IBM has asserted itself as a specialty cloud provider in the financial sector. The company is over $100 billion in market cap and still growing.
Shares go for $124.37.
No. 5: Apple Inc.
While Apple Inc. (NASDAQ: AAPL) is another company with hands in many sectors, it is most definitely a cloud stock.
Ever heard of the iCloud? It’s not a huge, sweeping cloud service like Amazon or Microsoft, but it’s a convenient storage mechanism for Apple customers.
The iCloud allows customers to securely share information on their laptops, smartphones, and smart watches.
For Apple, as its ecosystem increases – which it will, as the Internet of Things expands – so will its cloud computing and cloud storage.
There are plenty more reasons to want Apple stock, so this could be a foundational buy for your portfolio.
No. 6: Veeva Systems Inc.
Here’s another specialty cloud infrastructure service. Veeva Systems Inc. (NYSE: VEEV) is an American firm focused on pharmaceutical and life sciences industry applications.
This is like Salesforce, but for pharma.
Veeva’s cloud helps support critical functions of research and development in industry with CRM and other forms of data management.
Its services are increasingly in demand with the digitization of healthcare. And that’s reflected in its revenue growth.
Veeva has gone from $544 million to $1.1 billion in the last four years. Expect more from this company down the line.
It could be a bargain at $267.
No. 7: Workday Inc.
Workday Inc. (NASDAQ: WDAY) is something of a “human resources” cloud provider. As FinTech expands, people are going to look for on-demand financial management tools.
Workday’s cloud platform serves this function for company finances and human capital management. This kind of system is especially useful in the new work-from-home environment brought on by the coronavirus pandemic.
Gallup reported that 43% of the American workforce works from home at least some of the time.
This company nearly doubled its cash flow from $393 million in 2019 to $620 million in 2020. This can only increase as new solutions for telework emerge.
Workday stock trades for $181 right now.
No. 8: ServiceNow Inc.
ServiceNow Inc. (NYSE: NOW) is a software company based in Santa Clara, Calif. It develops a cloud computing platform to help companies manage digital workflows for enterprise operations.
This company actually has a strategic partnership with Microsoft as of last year. ServiceNow will host its enterprise cloud solutions on Microsoft Azure to improve the customer experience.
ServiceNow has more than 6,200 enterprise customers globally, and 80% of them are Fortune 500.
This is another company sure to benefit from a growing number of startups and work-from-home culture.
Shares trade for $436 currently.
No. 9: VMware Inc.
VMware Inc. (NYSE: VMW) is a global leader in cloud infrastructure and digital workplace technology. It is known for making “hypervisors,” or computer software that creates and runs virtual machines.
The company has a secure cloud network where developers can build and run apps. It also helps integrate on-premise enterprise solutions into cloud networks.
VMWare has over 600,000 customers. The company’s primary focus is to usher in digital transformation, staying on pace with IT innovation. It’s made over 40 acquisitions since 2005 to that effort.
At the end of 2019, VMWare acquired a company called Pivotal for $2.7 billion to enhance its cloud services.
VMWare has been steadily growing revenue by at least $1 billion each year for the last five years, taking $11 billion in the trailing 12 months. Profits are up 166% from 2019, at $6.4 billion. It also has over $3.5 billion in positive cash flow.
Everything about this company looks stable and ready to play in an ever-shifting cloud computing market. This one trades for $142.
No. 10: Amazon.com Inc.
We saved the most expensive for last. Amazon.com Inc. (NASDAQ: AMZN) is one of only four companies above $1 trillion in market cap, alongside Alphabet Inc. (NASDAQ: GOOGL), Microsoft, and Apple.
It’s the biggest cloud provider, controlling 33% of the cloud market. That edges out Microsoft by only a few percentage points.
Though it’s pitted against Microsoft for government contracts, the Amazon Web Services cloud isn’t going anywhere.
It serves huge companies around the world like Netflix Inc. (NASDAQ: NFLX), LinkedIn, Facebook Inc. (NASDAQ: FB), ESPN, and others.
Revenue will continue to flow into its cloud business, though Amazon corners several other markets as well – publishing, e-commerce, etc.
Of course, that makes it a much pricier “dream stock” to own at $3,127 a share. But don’t let the cost fool you; this one has plenty of room to run higher. And if the price tag is too much, many brokerages now allow you to buy fractional shares.
— Mike Stenger
Source: Money Morning