In this article, we discuss 11 best cloud stocks to buy now. If you want to see more stocks in this selection, check out 5 Best Cloud Stocks To Buy Now.
The global cloud computing market is anticipated to reach $1,554.94 billion by 2030, representing a compound annual growth rate of 15.7%. Cloud computing offers enterprise cost savings, flexibility and scalability, data security, data storage, and team collaboration, which is why approximately 70% of the companies have already made the transition to cloud computing, at least in part.
Cloud giants Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG) are under investigation by British media regulator Ofcom. The purpose of the investigation is to examine the market leadership of firms offering public cloud infrastructure and whether they present any anti-competitive barriers. Ofcom will complete its review and publish a conclusive report about any concerns and recommendations within the next 12 months.
Even as the Federal Reserve boosts interest rates which sends technology stocks crashing down, there is still plenty of investor interest in the sector. With the NASDAQ 100, the tech-heavy benchmark, down over 30% year-to-date as of September 26, investors are pouring into large and mega-cap tech stocks that seem to be trading at a discount. This is because they fear losing out on a market rally, as tech is clearly the future. Brian Battle, director of trading at Performance Trust Capital Partners, advised investors wanting to get into tech to “look for businesses with high market share, a good moat, and low substitution risk”.
Our Methodology
We selected the best cloud stocks based on strong business fundamentals, market visibility, growth potential, positive analyst coverage, and strong hedge fund sentiment. We have arranged the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.
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Best Cloud Stocks To Buy Now
11. SAP SE (NYSE:SAP)
Number of Hedge Fund Holders: 16
SAP SE (NYSE:SAP) is one of the leading German cloud software companies. Over the years, SAP SE (NYSE:SAP) has made multi-billion dollar acquisitions of several companies that sell cloud-based products and services. On September 12, SAP SE (NYSE:SAP) stock climbed as the company told customers that it would raise prices due to higher inflation.
On July 26, UBS analyst Michael Briest maintained a Buy recommendation on SAP SE (NYSE:SAP) but lowered the price target on the shares to EUR 107 from EUR 132. On September 14, Berenberg analyst Nay Soe Naing told investors who were looking to buy into the cloud adoption trend that SAP SE (NYSE:SAP) “presents itself more favorably” as compared to Oracle Corporation (NYSE:ORCL), its primary competitor.
According to the second quarter database of Insider Monkey, 16 hedge funds were long SAP SE (NYSE:SAP), compared to 19 funds in the earlier quarter. Fisher Asset Management is the leading stakeholder of the company, with 8.6 million shares worth over $784 million.
Like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG), SAP SE (NYSE:SAP) is one of the best cloud stocks to buy now.
Here is what Mayar Capital has to say about SAP SE (NYSE:SAP) in its Q2 2022 investor letter:
“SAP, the German software company, continues its transition from a licensing-based business model to a Cloud subscription- based model. This is an attractive structural shift as the cloud business – aside from being more predictable – has greater lifetime value per customer. The cloud business now stands at 34%, up from just 14% five years previously.”
10. AppFolio, Inc. (NASDAQ:APPF)
Number of Hedge Fund Holders: 18
AppFolio, Inc. (NASDAQ:APPF) is a California-based company that offers cloud business management solutions for the real estate industry. AppFolio Property Manager is one of AppFolio, Inc. (NASDAQ:APPF)’s primary offerings, a platform to leverage process automation and optimize common workflows for property management companies. In its Q2 earnings report, AppFolio, Inc. (NASDAQ:APPF) beat market estimates on revenue and EPS, and total units on the AppFolio Property Manager platform climbed to approximately 6.8 million from roughly 5.8 million at the end of the second quarter of 2021.
On September 15, Berenberg analyst Justin Ages initiated coverage of AppFolio, Inc. (NASDAQ:APPF) with a Buy rating and a $130 price target. He believes the company’s attractive pricing and “best-in-class functionality” will help it grow with customers and the continuous innovation and new Value+ services should also gain more customers. The analyst thinks the Street is undervaluing AppFolio, Inc. (NASDAQ:APPF)’s value proposition and growth potential.
According to Insider Monkey’s data, 18 funds were bullish on AppFolio, Inc. (NASDAQ:APPF) at the end of Q2 2022, compared to 24 funds in the last quarter. Ashe Capital is the biggest stakeholder of the company, with approximately 2 million shares worth $179 million.
Here is what Polen U.S. Small Company Growth Fund has to say about AppFolio, Inc. (NASDAQ:APPF) in its Q1 2021 investor letter:
“Finally, AppFolio is a vertical software-as-service (SaaS) provider to the multifamily real estate/property management market. The company is notable for its customer connection, which has allowed it to develop new technology for its customers with success. In addition to strong customer growth, we think AppFolio is a master of selling more to existing customers because of this deep connection and commitment to customer service. We have been particularly impressed by its response to the pandemic, which it has used to be even more valuable to many of its customers and accelerate the business. In our view, the potential for long-term compounding continues to be strong for AppFolio.”
9. DigitalOcean Holdings, Inc. (NYSE:DOCN)
Number of Hedge Fund Holders: 18
DigitalOcean Holdings, Inc. (NYSE:DOCN) is a New York-based company that offers a cloud computing platform in North America, Europe, Asia, and internationally. Its platform delivers on-demand infrastructure and platform tools for developers, start-ups, and small and mid-sized firms. On August 23, DigitalOcean Holdings, Inc. (NYSE:DOCN) announced that it has agreed to acquire Cloudways, a managed cloud hosting and SaaS provider for SMBs. This will help simplify workflows for firms that want to build and scale their digital businesses. DigitalOcean Holdings, Inc. (NYSE:DOCN) is one of the best cloud stocks to buy now.
On August 9, Piper Sandler analyst James Fish raised the price target on DigitalOcean Holdings, Inc. (NYSE:DOCN) to $57 from $56 and kept an Overweight rating on the shares. The company posted a mixed quarter and while the analyst was disappointed in the lack of clarity around the pricing impact, he said the solidity of the margin upside and free cash flow targets “are helping to create confidence in shares at these levels”.
According to Insider Monkey’s Q2 data, 18 hedge funds were bullish on DigitalOcean Holdings, Inc. (NYSE:DOCN), compared to 26 funds in the earlier quarter. Richard Driehaus’ Driehaus Capital is the biggest stakeholder of the company, with 779,219 shares worth $32.2 million.
8. Zscaler, Inc. (NASDAQ:ZS)
Number of Hedge Fund Holders: 40
Zscaler, Inc. (NASDAQ:ZS) was incorporated in 2007 and is headquartered in San Jose, California. It is a cloud security company that offers users, workloads, IoT, and OT devices secure access to externally managed applications, including software-as-a-service applications and internet destinations. In Q2 2022, Zscaler, Inc. (NASDAQ:ZS) earned $0.25 per share on $318.06 million in revenue, compared to estimates of $0.21 per share on $305.54 million in revenue. The firm also said that billings rose 57% year-over-year to $520.4 million. Zscaler, Inc. (NASDAQ:ZS) is one of the best cloud stocks to buy now.
On September 16, MKM Partners analyst Catharine Trebnick initiated coverage of Zscaler, Inc. (NASDAQ:ZS) with a Buy rating and a $225 price target as part of a broader research note on the Cyber Security Software Sector. The company “came out of nowhere” to be the VPN replacement, providing SaaS first mover advantage to Zero Trust framework, the analyst told investors in a research note. He added that Zscaler, Inc. (NASDAQ:ZS) has sustained top-line growth over 55% for the past two years and outperformed Wall Street consensus by an average of 7% over the same time period.
Among the hedge funds tracked by Insider Monkey, 40 funds reported owning stakes worth $1.02 billion in Zscaler, Inc. (NASDAQ:ZS) at the end of June 2022, compared to 39 funds in the last quarter worth $1.4 billion. D E Shaw is a significant position holder in the company, with approximately 1.4 million shares valued at $208.7 million.
Here is what Artisan Small Cap Fund has to say about Zscaler, Inc. (NASDAQ:ZS) in their Q4 2020 investor letter:
“We also exited our investment in Zscaler. Zscaler provides cloud-based Internet security solutions. Cyber Security remains a top concern for businesses and governments alike as cyberattacks can have devastating financial and reputational consequences. Furthermore, managing the security needs of legacy on-premise applications, a growing number of cloud-based applications (Office 365, Salesforce, etc.) and a remote workforce make operating IT infrastructures increasingly complex. Zscaler’s scalable, cloud-based security platform is a more secure and efficient way to connect users and applications, which eliminates the need for several layers of security (firewalls, VPNs, etc.) developed and built over the last couple of decades. While the pandemic crisis is likely disrupting some areas of Zscaler’s new sales funnel, the company is particularly well-suited to scale and accelerate our market share-gain thesis. Ninety percent of employees are remotely connecting to the enterprise IT network in today’s inverted world, as opposed to prior solutions which are geared to support 10%-20% of workers connecting remotely with the rest connecting from within the walls of a corporate network. Many employees have used traditional VPN connections to log into their networks remotely, but Zscaler’s platform offers a more secure connection without exposing an entire internal network, is easier to configure and is less costly to operate at scale. While the trend toward connecting remote devices over the Internet backbone remains firmly in motion, the stock appreciated over 300% in 2020, quickly outgrowing our small-cap market cap mandate, and we ended our successful campaign.”
7. Veeva Systems Inc. (NYSE:VEEV)
Number of Hedge Fund Holders: 45
Veeva Systems Inc. (NYSE:VEEV) is a California-based company that provides cloud software for the life sciences industry in North America, Europe, the Asia Pacific, the Middle East, Africa, and Latin America. For FY 2023, Veeva Systems Inc. (NYSE:VEEV) expects a non-GAAP fully diluted net income per share of approximately $4.17, versus a consensus of $4.15.
On September 15, KeyBanc analyst Scott Schoenhaus initiated coverage of Veeva Systems Inc. (NYSE:VEEV) with an Overweight rating and a $220 price target. The company is well-positioned in the Software-as-a-Service to Life Sciences Industry, and he is optimistic about its ability to successfully address new services with its R&D/Vault platform, the analyst told investors. He added that he sees Veeva Systems Inc. (NYSE:VEEV) as positioned advantageously to expand its top line at 15% over the next few years at stable 40% EBIT margins, which are some of the highest in all HCIT and SaaS groups.
Among the hedge funds tracked by Insider Monkey, 45 funds were long Veeva Systems Inc. (NYSE:VEEV) at the end of the second quarter of 2022, compared to 41 funds in the last quarter. Greg Poole’s Echo Street Capital Management is the biggest stakeholder of the company, with 757,605 shares worth $150 million.
Here is what ClearBridge Investments Mid Cap Growth Strategy has to say about Veeva Systems Inc. (NYSE:VEEV) in its Q4 2021 investor letter:
“Veeva Systems is a software provider to the life sciences industry focused on commercial tools as well as software to automate clinical trials, manufacturing quality control, and drug safety events. We believe that with an innovative track record of organic product development and exceptional vertical software profitability, Veeva can continue to sustain 20% top-line growth, while maintaining high profitability, as the life science industry belatedly digitizes its R&D and sales and marketing.”
6. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Holders: 65
Snowflake Inc. (NYSE:SNOW) is an American company providing a cloud-based data platform which enables customers to consolidate data into a single platform to derive meaningful business insights, build data-driven applications, and collaborate. Snowflake Inc. (NYSE:SNOW)’s strong second quarter results and guidance led multiple Wall Street analysts to acknowledge the company’s “strategic nature”.
On September 16, Needham analyst Mike Cikos initiated coverage of Snowflake Inc. (NYSE:SNOW) with a Buy rating and a $240 price target. The company benefits from its cloud-native data platform, which has “massive scale,” the analyst told investors in a research note. He sees a “large, growing opportunity” for Snowflake Inc. (NYSE:SNOW) in a 2026 total addressable market, which is estimated at $248 billion. He believes Snowflake Inc. (NYSE:SNOW)’s ease of use and ability to support several use cases “draws mass appeal with solid product/market-fit”.
According to Insider Monkey’s Q2 data, 65 hedge funds were bullish on Snowflake Inc. (NYSE:SNOW), compared to 81 funds in the last quarter. Brad Gerstner’s Altimeter Capital Management is the largest position holder in the company, with 17 million shares worth $2.36 billion.
In addition to Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG), Snowflake Inc. (NYSE:SNOW) is one of the leading names in the cloud sector.
Here is what Baron Fifth Avenue Growth Fund has to say about Snowflake Inc. (NYSE:SNOW) in its Q2 2022 investor letter:
“During the quarter, we added to three of our cloud infrastructure positions – Snowflake Inc., Cloudflare, Inc., and Datadog, Inc.While investors are concerned that a weakening macroeconomic environment will be a near term headwind to growth as customers may slow down their cloud expansions, we remain focused on the long term – duration of growth, competitive advantages, and innovative capabilities and are happy to increase our positions at a more attractive price. For example, Snowflake, the leading data cloud provider, during its recent user conference, announced several new products, which significantly expand its addressable market…” (Click here to see the full text)
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Disclosure: None. 11 Best Cloud Stocks To Buy Now is originally published on Insider Monkey.