In this article, we will discuss the 12 best cloud computing stocks for 2022. If you want to skip our detailed analysis of these stocks, you can go directly to the 5 Best Cloud Computing Stocks For 2022.
Cloud computing is one of the fastest-growing industries in the technology sector. According to Gartner, spending on cloud computing solutions will surpass 45% of all enterprise spending in the tech sector by 2026. The Stamford, Connecticut-based research and consulting company also anticipates the total market size for cloud computing to grow by 21% YoY in 2022 to $480 billion. The widespread introduction of 5G mobile technology will further bolster the adoption of cloud computing globally.
The COVID-19 crisis has expedited a combination of existing reasons driving cloud transition. According to PWC, during the first quarter of 2020, cloud spending increased by 37% to $29 billion. This pattern is likely to continue as the shift to virtual work emphasizes the need for scalable and affordable off-premises technology services. According to Gartner, cloud spending is expected to climb 19% for the full year, despite an overall IT spending decline of 8%.
Cloud computing may provide significant value to businesses across many industries, but it is not uniformly dispersed. Sectors such as retail, high tech, banking, and healthcare systems and services, are expected to deliver the most value in 2030, as determined by EBITDA impact. However, nearly every Fortune 500 industry has the potential for a 20% increase in EBITDA.
According to McKinsey, system outages and cybersecurity breaches would cost businesses around $650 billion by 2030. Cloud could reduce downtime for migrated apps by around 57%, yielding a 26% cost reduction for breaches due to resilient designs. Cloud security processes and controls could be automated to increase platform integrity (such as DevSecOps). With a modernized, uniform tech stack across settings, these features can mitigate tech risks.
Amazon.com, Inc. (NASDAQ:AMZN) through its Amazon Web Services (AWS), Alphabet Inc. (NASDAQ:GOOGL) through Google Cloud, and Microsoft Corporation (NASDAQ:MSFT) through Azure are three of the biggest names in the cloud computing industries. However, cloud computing is not the primary source of revenue for these companies, and thus they cannot be considered as pure plays in the cloud computing circle.
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Our Methodology
For this article, we have shortlisted 12 stocks that are pure-plays in the cloud computing industry and are expected to generate healthy returns. We have analyzed analyst ratings, hedge fund holdings, and business fundamentals for each stock. The hedge fund data is based on the 867 funds tracked by Insider Monkey at the end of Q3 2021.
Best Cloud Computing Stocks For 2022
12. Pure Storage, Inc. (NYSE:PSTG)
Number of Hedge Funds: 28
Pure Storage, Inc. (NYSE:PSTG) provides cloud-based data storage solutions globally. The Mountain View, California-based organization, provides solutions through its proprietary Purity Operating Environment Software that executes storage services like data encryption, data protection, and data reduction.
Pure Storage, Inc. (NYSE:PSTG) reported stellar Q3 2021 results on November 23. Revenue and non-GAAP EPS for the period was $562.7 million and 22 cents, as opposed to the analysts’ forecast of $530.08 million and 12 cents, respectively. Pure Storage, Inc. (NYSE:PSTG) also provided strong Q4 2021 and FY22 revenue guidance of $630 million and $2.1 billion compared to the consensus estimate of $602.2 million and $2.04 billion, respectively.
Mehdi Hosseini at Susquehanna increased the price target on Pure Storage, Inc. (NYSE:PSTG) from $33 to $36 while maintaining a Positive rating on the stock in a research note issued on December 1. The analyst highlighted that Pure Storage Inc.’s (NYSE:PSTG) strategy of product diversification is working out and aiding the organization as it is maximizing the full benefit from the storage “pyramid” including a Structured data platform through FlashArray and an Unstructured data platform through FlashArray, FlashBlade, and PortWorx.
11. Arista Networks, Inc. (NYSE:ANET)
Number of Hedge Funds: 32
Arista Networks, Inc. (NYSE:ANET) develops and sells cloud-based networking solutions globally to large data centers, campuses, and routing environments. The company’s CloudVision solution provides agility, analytics automation, and security. Arista Networks, Inc. (NYSE:ANET) recently executed a 4-to-1 split in November 2021 to improve liquidity in the stock and authorized a share repurchase plan of an additional $1 billion on top of the prior authorization.
Arista Networks, Inc. (NYSE:ANET) reported strong Q3 2021 results along with Q4 2021 guidance. The organization reported an adjusted EPS of $2.96 on top of $748.7 million in revenue. Meanwhile, the analysts’ estimate for adjusted EPS and revenue was $2.73 and $737.94 million. As for Q4, Arista Networks, Inc. (NYSE:ANET) expects revenue to be around $775 million to $795 million, compared to the consensus forecast of $754.06 million.
Following the quarterly results, Erik Suppiger at JMP Securities increased the price target on Arista Networks, Inc. (NYSE:ANET) from $103.75 to $135. The price target has been adjusted to incorporate the impact of the stock split. The analyst has cited the management’s confidence in higher spending by its customers as the reason for the strong guidance.
10. Unity Software Inc. (NYSE:U)
Number of Hedge Funds: 36
Unity Software Inc. (NYSE:U) offers a gaming platform for the creation of video games and other applications. Unity Cloud Build is specially targeted towards the creation and sharing of games. The platform compiles, deploys, and tests games on its own and is offered with Unity Teams Advanced.
On November 10, Brian Schwartz at Oppenheimer increased the target price on Unity Software Inc. (NYSE:U) from $125 to $185 while maintaining an Outperform rating. The target price provides a potential upside of over 20% from the current stock price as of December 22. The analyst highlighted the strong results reported by Unity Software Inc. (NYSE:U) in his research note. Unity Software Inc. (NYSE:U) also announced the takeover of Weta Digital in its quarterly results for $1.625 billion.
Besides Unity Software Inc. (NYSE:U), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT) are the three tech giants expanding into the cloud computing industry.
9. Veeva Systems Inc. (NYSE:VEEV)
Number of Hedge Funds: 44
Veeva System Inc. (NYSE:VEEV) is a known provider of tailored cloud-based software related to quality management, health, safety, and environment (HSE), and other aspects of the organization. The San Francisco, California-based entity has customers belonging to the chemicals, consumer goods, cosmetics, and life sciences industries.
Veeva System Inc. (NYSE:VEEV) reported strong Q3 2021 results on December 1. The entity reported revenue and EPS of $476.1 million and 97 cents, respectively, compared to the analysts’ forecast of $465.9 million and 88 cents. Veeva System Inc. (NYSE:VEEV) also provided a higher-than-expected Q4 outlook with revenue to be around $479 million at the midpoint and EPS at 88 cents as opposed to analysts’ estimate of $479.54 million and 86 cents, respectively. FY22 revenue and EPS guidance were also higher than the estimate.
Following the results, Joe Vruwink at Baird maintained an Outperform rating on Veeva System Inc. (NYSE:VEEV) with a target price of $310. The analyst highlighted that the demand for the company’s services remains strong, and investors should be interested in the long-term prospects of Veeva System Inc. (NYSE:VEEV).
8. Splunk Inc. (NASDAQ:SPLK)
Number of Hedge Funds: 47
Splunk Inc. (NASDAQ:SPLK) is a provider of cloud-based data analytics software that aids in analyzing and sharing data across various mediums. 92 out of Fortune 100 companies are customers of Splunk.
At the end of Q3 2021, 47 hedge funds reported owning a stake in Splunk Inc. (NASDAQ:SPLK), worth over $1.25 billion.
The stock price has been under pressure after CEO Doug Merritt announced that he would step down from his position of President and CEO of the company. Graham Smith, who happens to be the Chairperson of the Board of Directors, will take over as the interim CEO effective immediately. However, with the supervision of Silver Lake, Splunk Inc. (NASDAQ:SPLK) is expected to find a suitable replacement soon. Silver Lake is a renowned hedge fund with a focus on the technology sector that invested $1 billion as convertible senior notes in Splunk in June 2022.
On December 2, Matthew Hedberg at RBC Capital maintained an Outperform rating on Splunk Inc. (NASDAQ:SPLK) stock. In a research note, the analyst shared that the company’s results for the third quarter were “in line with its pre-announcement as cloud ARR growth accelerated to 75% from 72%.” Hedberg remains bullish on the stock in the long run due to its “attractive” valuation.
7. Zoom Video Communications, Inc. (NASDAQ:ZM)
Number of Hedge Funds: 56
Zoom Video Communications, Inc. (NASDAQ:ZM) is a provider of a cloud-based peer-to-peer platform that can be used for audio and video communication. The software was at the forefront during the COVID-19 pandemic as people were forced to restrict their movements and had to opt for such platforms as a medium of virtual communication.
Zoom Video Communications, Inc. (NASDAQ:ZM) is further betting on the rise of cloud computing. The company, along with Salesforce.com inc. (NYSE:CRM) and ServiceNow, Inc. (NYSE:NOW), invested in Genesys Cloud services. Genesys develops cloud-based call center software and raised $580 million in investment at a valuation of $21 billion.
Cathie Wood’s ARK Investment has bought nearly 391,000 shares of Zoom Video Communications since November 30. The hedge fund is known for investing in disruptive innovative companies.
6. Okta Inc. (NASDAQ:OKTA)
Number of Hedge Funds: 62
Okta, Inc. (NASDAQ:OKTA) provides a cloud-based identity management platform that aid organizations in managing and securing user authorization into applications. Developers have the option to identity controls through this platform to secure their applications, devices, and website web services from unauthorized access. Okta, Inc. (NASDAQ:OKTA) claims to have more than 14,000 customers on its platform.
The San Francisco, California-based company, reported its Q3 2021 results on December 1. Okta, Inc. (NASDAQ:OKTA) reported revenue of $350.7 million, increasing by 61% YoY and surpassing the analysts’ forecast of $327 million. Similarly, the adjusted loss per share for the quarter was seven cents compared to analysts’ forecast of 16 cents.
Following this development, in a note issued to investors on December 2, Rob Owens at Piper Sandler upgraded Okta, Inc. (NASDAQ:OKTA) stock from a Neutral to an Overweight rating and increased the price target from $250 to $270. The analyst said that the positive Q3 results reflect strong growth prospects and advised investors to “dive back” into the stock, given Okta Inc.’s (NASDAQ:OKTA) attractive valuation and “compelling outlook.”
Lakehouse Capital mentioned Okta, Inc. (NASDAQ:OKTA) in its Q2 2021 investor letter. Here’s what the investment management firm said:
“The Fund held 20 positions as of the end of June and exited four during the year (including) Okta. The companies we exited were sold almost entirely on the basis of their valuations getting stretched well past their norms and to levels where the return profile no longer offered the asymmetric upside that led us to invest in the first place. We dislike selling on valuation as great growth companies are hard to find and letting winners run is an important facet of a winning growth strategy, however, we’re not gluttons for punishment either and in each of those cases we redeployed capital towards other high-quality growth companies with less demanding valuations.”
In addition to Okta, Inc. (NASDAQ:OKTA), companies like Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT) are providing infrastructure for companies undergoing a digital transformation in the cloud industry.
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Disclose. None. 12 Best Cloud Computing Stocks For 2022 is originally published on Insider Monkey.
