In this article, we will take a look at the 10 Worst Cloud Stocks To Buy According to Short Sellers.
Cloud computing refers to the use of remote servers, typically accessed via the Internet, to store, manage, and process data. A segment of the broader IT services industry, the cloud computing market was valued at $480 billion in 2022, and despite its size, it is projected to grow at a compound annual growth rate (CAGR) of 17%, reaching an estimated $2.2 trillion by 2032 (according to estimates from Precedence Research). Knowing this, it’s no surprise that many of the hottest tech stocks from 2019 to 2021 were tied to cloud computing, with ETFs like the First Trust Cloud Computing ETF surging 71.84% over the past five years.
The largest cloud computing segment is Software as a Service (SaaS), which generates the most revenue in the cloud market and has become the standard for delivering enterprise applications. Common uses of SaaS include customer relationship management, analytics, and artificial intelligence software. The next layer, Platform as a Service (PaaS), provides customers with a platform for application development. Lastly, Infrastructure as a Service (IaaS) offers customers off-site resources such as storage, servers, virtual machines, and networking.
Amid the disruption and excitement surrounding generative AI (GenAI), cloud service providers (CSPs) enable businesses to engage with customers and operate innovatively. With AI Ops and AI tools offered by CSPs, businesses can transform proof-of-concept ideas into production-ready solutions, delivering personalized recommendations, optimizing supply chains, and enhancing customer experiences. Following the launch of OpenAI’s ChatGPT, cloud providers have started utilizing these advancements to unlock new opportunities. Moreover, Tim Potter, a principal at Deloitte Consulting, made the following remarks regarding the relationship between AI and the cloud:
“AI is accelerating the adoption of cloud computing while enabling cloud providers to enhance platform solutions and services. Most AI solutions are either services offered directly by hyperscalers or solutions built on top of a hyperscaler’s cloud infrastructure.”
Another major driver of the cloud industry’s growth is the increasing recognition by large enterprises of its impact on their operations. According to a report by the Cloud Security Alliance, 94% of companies worldwide have already adopted cloud computing solutions this past year. This widespread adoption is projected to have a significant economic impact, with estimates suggesting it could generate around $3 trillion in revenue by 2030.
Although the Magnificent Seven stocks have been in the spotlight since the surge in artificial intelligence excitement, Apple Inc. has recently been making notable advancements in the AI space. Earlier this year, the iPhone-maker unveiled its new artificial intelligence initiative which is set to elevate the cloud to new levels of consumer exposure, with the tech giant moving toward offering on-device AI through a partnership with OpenAI’s ChatGPT platform.
Our Methodology
To compile our list of the 10 worst cloud stocks to buy according to short sellers, we first compiled a list of 20 cloud stocks by sifting through ETFs and online rankings. Then we checked their short interest and selected the 10 with the highest short interest. Finally, we ranked the stocks in ascending order of their short interest. We have also included the hedge fund sentiment for each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Informatica Inc. (NYSE:INFA)
Short % of float: 2.33%
Number of Hedge Fund Holders: 28
Informatica Inc. (NYSE:INFA) is a software company that provides tools and solutions to help businesses integrate, manage, and govern their data, enabling better decision-making and deeper insights. The company has also made significant advancements in cloud data management, especially with its Informatica Data Management Cloud (IDMC) and PowerCenter Cloud Edition.
Although targeted by short sellers, the company recently gained attention for its strong financial performance and strategic initiatives. It reported a 35% year-over-year increase in cloud subscription Annual Recurring Revenue (ARR), reaching $653 million, which contributed to a total ARR of $1.64 billion, a 7% year-over-year growth. Moreover, total revenue grew by 6% to $389 million, while non-GAAP operating income surged 29% year-over-year to $109 million.
In addition, RBC Capital Markets reaffirmed its Outperform rating on Informatica Inc. (NYSE:INFA), underscoring the firm’s optimism after attending Informatica World, and highlighting the company’s balanced risk and reward potential for investors.
As of Q2 2024, 28 hedge funds held positions in Informatica Inc. (NYSE:INFA), with Jericho Capital Asset Management emerging as the largest shareholder, holding a stake valued at $67.46 million.
9. Gitlab Inc. (NASDAQ:GTLB)
Short % of float: 3.45%
Number of Hedge Fund Holders: 39
GitLab Inc. (NASDAQ:GTLB) is a web-based SaaS platform offering free open and private repositories, issue tracking, and wikis. As a comprehensive DevOps solution, it supports the entire project lifecycle—from planning and source code management to monitoring and security. Moreover, GitLab Inc. (NASDAQ:GTLB) integrates Google Cloud’s generative AI models to deliver AI-powered features across the SDLC with a privacy-first approach.
GitLab Inc. (NASDAQ:GTLB) recently received an upgraded price target from TD Cowen, now set at $63, up from $58, with a reiterated a Buy rating. This followed the company’s strong second quarter, which saw 31% revenue growth, surpassing the anticipated 27%. The company also raised its full-year revenue guidance to a 28% increase, up from 27%.
Notably, GitLab Inc. (NASDAQ:GTLB) reported a 42% growth in billings for Q2, the highest since Q1 2024, far exceeding analyst expectations. Additionally, the company was named a Leader in the 2024 Gartner Magic Quadrant for AI Code Assistants and retained its Leader status in the 2024 Magic Quadrant for DevOps Platforms.
As of Q2 2024, 39 hedge funds held a total of 5.07 million shares in the company, with HMI Capital owning the largest stake, valued at $252.4 million.
Baron Discovery Fund stated the following regarding GitLab Inc. (NASDAQ:GTLB) in its Q2 2024 investor letter:
“We are huge believers in the practical uses of AI, and we have several investments in companies that adapt AI models to enhance their products and services. These include companies like GitLab Inc. (NASDAQ:GTLB), SentinelOne, Inc., and Couchbase, Inc., which were among our top detractors at one point in the second quarter (GitLab and SentinelOne recovered significantly in the last week of the quarter). As of the second quarter at least, the market has just not been ready to reward AI companies beyond those providing “picks and shovels.” This led to all three of these companies trading at or near all-time low valuation levels during the quarter. Nevertheless, we believe that in the coming quarters the market will broaden its level of interest from AI hardware to “adaptive AI” investments like GitLab, SentinelOne, and Couchbase. In that scenario, all three of these stocks have significant upside potential.
GitLab is a subscription software company that enables enterprise software developers to develop new software applications rapidly and securely for their firms. GitLab uses AI to help with code suggestions, to check for holes in security, and to automate collaboration among the many developers within an enterprise. GitLab recently launched a product called Duo that we believe will provide revenue upside for the company and enhance the competitiveness of their product of offerings. SentinelOne is a cybersecurity company that provides endpoint protection (a much more advanced version of legacy “anti-virus” software) both at customers’ physical sites and in the cloud. It uses AI to detect anomalous behavior on the network and to automate the remediation of the security flaws that led to the intrusion. Both companies are recurring revenue entities, with high gross margins (78% for SentinelOne and 90% for GitLab) and are growing rapidly (revenue growth of 25% or more). Yet both are trading at or near all-time low valuation levels. GitLab shares dropped 14.7% in the quarter despite raising full-year revenue and earnings guidance. This was partly due to a health issue with the CEO (cancer recurrence which he believes is very treatable). We see GitLab revenues growing at a compounded rate of 26% through 2028 with free cash flow growing five-fold over current levels. Again, we see the stock doubling over this time.”
8. Zoom Video Communications, Inc. (NASDAQ:ZM)
Short % of float: 4.02%
Number of Hedge Fund Holders: 41
Zoom Video Communications, Inc. (NASDAQ:ZM), based in San Jose, California, gained widespread recognition during the pandemic as its video conferencing service became essential during lockdowns. Now, the company is expanding its focus by introducing new business-oriented features, such as word processing capabilities and increased integration of artificial intelligence to enhance its core video services.
On September 18, Zoom Video Communications, Inc. (NASDAQ:ZM) and Mitel announced a strategic partnership to offer enterprises a hybrid cloud communications solution. This collaboration merges Zoom’s advanced capabilities with Mitel’s established platform, creating a “Zoom-first” experience within Mitel’s services. Customers will be able to access Zoom Workplace and Zoom AI Companion without requiring additional plug-ins, addressing the rising demand for flexible unified communications (UC).
Zoom Video Communications, Inc. (NASDAQ:ZM)’s Q2 2025 results outperformed expectations, with non-GAAP operating income reaching $456 million and total revenue hitting $1.16 billion. The company also raised its full-year revenue forecast to $4.63 billion to $4.64 billion, and expects non-GAAP earnings per share of $5.29 to $5.32.
According to Insider Monkey’s Q2 2024 database, 41 out of 912 hedge funds held shares in Zoom Video Communications, Inc. (NASDAQ:ZM). The largest shareholder was AQR Capital Management, with a stake valued at $337.2 million.
7. Snowflake Inc. (NYSE:SNOW)
Short % of float: 4.07%
Number of Hedge Fund Holders: 69
Snowflake Inc. (NYSE:SNOW) posted impressive results for Q2 of fiscal year 2025, with a 30% year-over-year increase in product revenue, reaching $829 million. This strong performance led the company to raise its full-year product revenue guidance.
While Deutsche Bank lowered its price target from $220 to $180 on SNOW, it maintained its Buy rating on the software company. The bank highlighted stable consumption and solid bookings but noted ongoing investor concerns about how new features and AI investments will drive consumption revenue. Despite these concerns, Deutsche Bank remains positive about Snowflake’s long-term potential, emphasizing that the company operates in a large market with ample room for growth and multiple winners. Snowflake’s strengths, including its multi-cloud capabilities, ease of use, extensibility, and network effects, are seen as key drivers of future success.
Approximately 25% of Snowflake’s accounts are now using its AI features weekly, signaling early adoption of these new products. However, uncertainty remains about how these features will translate into consumption revenue.
As of Q2 2024, 69 hedge funds held positions in Snowflake Inc. (NYSE:SNOW), with a total stake of $3.49 billion. Altimeter Capital Management was the largest shareholder, with a $1.29 billion position.
6. MongoDB, Inc. (NASDAQ:MDB)
Short % of float: 5.41%
Number of Hedge Fund Holders: 54
MongoDB, known for its flexible NoSQL database management system, enables developers to store data in a non-relational format, providing advantages such as flexible schemas and horizontal scaling. Its popularity surged with the rise of cloud computing, making NoSQL more accessible. MongoDB has established itself as a leading platform for cloud application development, attracting a community of over 7 million developers.
In Q2, MongoDB reported a 13% year-over-year revenue increase, reaching $478 million, primarily driven by the success of its Atlas and Enterprise Advanced (EA) products. The company also gained over 1,500 new customers during the quarter, bringing its total customer base to more than 50,700.
Loop Capital expressed continued confidence in MongoDB, Inc. (NASDAQ:MDB) by maintaining a Buy rating and a price target of $315. The firm noted the stabilization of MongoDB’s Cloud Atlas business and a modest uptick in consumption trends over the past quarter, while noting that the operational challenges from the first quarter have largely been resolved, resulting in a positive outlook for the company’s cloud segment. The report indicated that Cloud Atlas is expected to see Street estimates increase by over 20% for both fiscal years 2025 and 2026.
ClearBridge All Cap Growth Strategy stated the following regarding MongoDB, Inc. (NASDAQ:MDB) in its first quarter 2024 investor letter:
“During the first quarter, we initiated a new position in MongoDB, Inc. (NASDAQ:MDB), in the IT sector. The company offers a leading modern database platform that handles all data types and is geared toward modern Internet applications, which constitute the bulk of new workloads. Database is one of the largest and fastest-growing software segments, and we believe it is early innings in the company’s ability to penetrate this market. MongoDB is actively expanding its potential market by adding ancillary capabilities like vector search for AI applications, streaming and real-time data analytics. The company reached non-GAAP profitability in 2022, and we see significant room for improved margins as revenue scales.”
5. Monday.com Ltd (NASDAQ:MNDY)
Short % of float: 5.93%
Number of Hedge Fund Holders: 43
Monday.com Ltd. (NASDAQ:MNDY) is a cloud-based platform that enables users to build custom applications and project management tools. Its visual interface helps teams of all sizes manage projects, collaborate, and automate workflows. In Q2 2024, Monday.com introduced new GenAI features to the platform, including auto-generated action items, threat summaries, and improved text extraction capabilities.
Monday.com Ltd. (NASDAQ:MNDY) achieved impressive financial growth in the second quarter, reporting a 34% increase in revenue and record GAAP profitability, driven by a major expansion deal involving 80,000 seats. In August, the company also reached $1 billion in annual recurring revenue, a significant milestone just ten years after launching its Work Operating System (Work OS), up from $1 million in ARR eight years ago.
Following the Q2 earnings report, William Blair reaffirmed its Outperform rating on Monday.com Ltd. (NASDAQ:MNDY). The analyst emphasized that the recent results highlight Monday.com’s strong position for long-term success in the work management and collaboration space, and the company is on course to become a powerful enterprise-grade platform.
Next Century Growth Small Cap Strategy stated the following regarding Monday.com Ltd. (NASDAQ:MNDY) in its first quarter 2024 investor letter:
“Monday.com Ltd. (NASDAQ:MNDY) provides a next generation software platform for companies to run many key aspects of their businesses, such as managing project tasks and workflows, product development, and sales CRM (customer relationship management). MNDY has had success selling into small and medium size businesses and is having increasing success further up market. Revenue growth is currently in the 30% range and the company has proven they can operate profitably and generate solid free cash flow.”
4. UiPath Inc. (NYSE:PATH)
Short % of float: 6.73%
Number of Hedge Fund Holders: 29
UiPath Inc. (NYSE:PATH) is a global software company specializing in robotic process automation (RPA) that automates repetitive, rule-based tasks, enabling human workers to focus on more complex, strategic work. Its Automation Cloud offers a cloud-based solution with quick deployment, scalability, and minimal maintenance.
Even amidst significant short interest, UiPath Inc. (NYSE:PATH) delivered strong financial results in Q2 of FY25, exceeding guidance across key metrics. The company’s ARR grew by 19% year-over-year to $1.551 billion, driven by $43 million in net new ARR. Cloud ARR saw impressive growth, increasing by 65% to surpass $850 million. Additionally, total revenue for the quarter reached $316 million, a 10% rise from the previous year, while non-GAAP adjusted free cash flow came in at $49 million.
In response to the strong Q2 performance, Evercore ISI raised its price target to $16, maintaining an In Line rating on PATH. BofA Securities also increased its price target to $18 following the results.
According to Insider Monkey’s analysis of hedge fund portfolios from Q2 2024, 29 out of 912 hedge funds held shares in UiPath Inc. (NYSE: PATH). The largest shareholder was Catherine D. Wood’s ARK Investment Management, with holdings valued at $377.17 million.
3. Dropbox, Inc. (NASDAQ:DBX)
Short % of float: 6.76%
Number of Hedge Fund Holders: 41
Dropbox, Inc. (NASDAQ:DBX) is a file hosting service provided by Dropbox, Inc., based in San Francisco, California. It offers cloud storage, file synchronization, personal cloud services, and client software.
In August, Dropbox, Inc. (NASDAQ:DBX) reported its Q2 2024 earnings, surpassing revenue expectations with a 1.9% year-over-year increase to $635 million. The company also highlighted progress on its AI-powered search tool, Dash. Despite challenges in its Teams business and anticipated volatility in the latter half of the year, Dropbox is making significant improvements to its core offerings and preparing for the broader rollout of Dash.
KeyBanc reaffirmed its Overweight rating on Dropbox, Inc. (NASDAQ:DBX), maintaining a price target of $31. The rating follows Dropbox’s recent acquisition of Reclaim, an AI-driven scheduling app. The acquisition includes the Reclaim.ai team and supports the service’s ongoing development, with plans to expand integrations to platforms like Outlook. KeyBanc expects this move to enhance Dropbox’s workflow capabilities through advanced AI technologies.
Insider Monkey’s Q2 data showed 41 hedge funds bullish on Dropbox, Inc. (NASDAQ:DBX), a notable rise from 28 in the previous quarter. The largest stakeholder, Renaissance Technologies, holds 10.3 million shares valued at $231.76 million.
2. Samsara Inc. (NYSE:IOT)
Short % of float: 7.81%
Number of Hedge Fund Holders: 26
Samsara Inc. (NYSE:IOT) offers a cloud software platform focused on commercial vehicle telematics, video-based driver safety, driver workflow automation, and industrial equipment monitoring. Its products include real-time GPS, AI-powered dash cams, routing, and driver apps. In Q2 of fiscal year 2025, the company added 169 customers with over $100,000 in annual recurring revenue (ARR), along with a record 14 customers surpassing $1 million in ARR.
Goldman Sachs raised its price target for Samsara Inc. (NYSE:IOT) to $45 from $44 while maintaining a Buy rating following Samsara’s earnings report, which exceeded expectations. The company saw a 1% increase in ARR, a 4% revenue growth, an 800 basis point improvement in operating margins, and a 400 basis point boost in free cash flow margins. Additionally, Samsara’s guidance for Q3 and the full fiscal year 2025 surpassed forecasts for both revenue and operating margins.
Samsara Inc. (NYSE:IOT) recently introduced Asset Tag, an industrial-grade Bluetooth tag designed to track small assets, helping customers save money by improving asset utilization, preventing loss, and boosting worker efficiency. In Q2, Asset Tag contributed $1 million in new annual contract value for the company.
As of Q2 2024, 26 hedge funds held positions in Samsara Inc. (NYSE:IOT), with Atreides Management being the largest shareholder, holding a stake valued at $47.66 million.
Baron Opportunity Fund stated the following regarding Samsara Inc. (NYSE:IOT) in its Q2 2024 investor letter:
“We initiated a position in Samsara Inc. (NYSE:IOT) during the quarter. Samsara provides a cloud software platform for commercial vehicle telematics, video-based driver safety, driver workflow automation, and industrial equipment monitoring. Its software collects and analyzes data from sensors and cameras installed in its customers’ commercial trucks, construction equipment, warehouses, and other assets, helping companies visualize and improve the state of their operations. More than 17,500 customers in the transportation, field services, construction, utilities, and other industries have adopted Samsara, and last year the company became one of the fastest software companies ever to reach $1 billion in annual recurring revenue (ARR). Samsara has been winning share from competitors in the $51 billion connected fleet software market due to its superior cloud native architecture, ability to address multiple use cases in a single platform, and its rapid product release cycle. As Samsara continues to expand its connected asset base, it is building an unmatched data asset that it is using to drive better outcomes for its customers. Capturing more than 9 trillion data points from over 44 billion hours of camera footage across millions of miles driven, Samsara uses AI to help companies optimize their vehicle routes, prevent accidents, improve asset utilization, reduce fuel expenses, and lower insurance premiums. In 2023, across its customer base, the company prevented 200,000 accidents and reduced carbon emissions by 2.3 billion pounds. We see a long runway for growth as Samsara expands in existing accounts and wins new logos. Samsara is less than 50% penetrated in its existing customers’ vehicle fleets and has a significant opportunity to cross-sell newer non-vehicle products (which already account for $125 million of ARR) into its base. The company has also increased its customer count by more than 20% year-over-year every quarter and identified hundreds of thousands of potential new accounts to win. As it has scaled, Samsara has delivered healthy operating leverage, and we think free cash flow margins can ultimately expand beyond 20% longer term.”
1. Rubrik Inc. (NYSE:RBRK)
Short % of float: 10.46%
Number of Hedge Fund Holders: 28
Rubrik Inc. (NYSE:RBRK) is a cloud data management and security company specializing in data backup, recovery, and protection. Known for its scalability and efficiency, Rubrik effectively meets the demands of modern IT environments.
Despite being heavily shorted, Rubrik Inc. (NYSE:RBRK) recently delivered strong financial results, with Subscription Annual Recurring Revenue reaching $919 million, a 40% year-over-year increase. Cloud ARR also experienced substantial growth, surging 80% year-over-year to $678 million. Rubrik’s Cloud ARR and revenue exceeded expectations by 5%, and its contribution margin outperformed by 500 basis points.
The company’s success was further enhanced by its support for hundreds of customers during the CrowdStrike outage, which contributed to increased pipeline growth. In addition, Rubrik’s net retention rate exceeds 120%, demonstrating that customers are consistently increasing their spending with the company.
On September 10, Guggenheim reiterated a Buy rating on RBRK with a price target of $48. The firm highlighted Rubrik’s impressive growth, noting it as the fastest-growing company within their enterprise software coverage. Guggenheim emphasized that Rubrik’s sales and marketing expenses are well-aligned with new ARR and recommended continued investment to capture the vast market opportunity. The firm also believes Rubrik Inc. (NYSE:RBRK) is on track to achieve free cash flow margins exceeding 35%, comparable to typical software companies at scale.
As of Q2 2024, 28 hedge funds held positions in Rubrik Inc. (NYSE:RBRK), with a combined stake valued at $165.35 million.
While we recognize the potential of RBRK as an investment, we believe certain deeply undervalued AI stocks offer greater prospects for higher returns in a shorter period. If you’re seeking an AI stock with even more promise than those on our list and trading at less than 5 times its earnings, check out our report about the cheapest AI stock.
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