In this article, we discuss the 5 best cloud stocks to buy now. If you want to read our detailed analysis of these stocks, go directly to the 13 Best Cloud Stocks To Buy Now.
5. Workday, Inc. (NASDAQ:WDAY)
Number of Hedge Fund Holders: 72
In November, Needham analyst Scott Berg raised the price target on Workday, Inc. (NASDAQ:WDAY) stock to $360 from $310 and kept a Buy rating, noting that the firm had registered “very good” third quarter results that showed accelerated subscription revenue growth. The analyst also highlighted that Workday, Inc. (NASDAQ:WDAY) had guided revenue estimates for 2023 to around 20%, above 2022 levels.
Workday, Inc. (NASDAQ:WDAY) has enjoyed considerable hedge fund interest in the past few years. 72 hedge funds in the database of Insider Monkey were long Workday, Inc. (NASDAQ:WDAY) at the end of September 2021 with stakes worth $6.3 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Workday, Inc. (NASDAQ:WDAY) was one of them. Here is what the fund said:
“In addition to the new issue market, we have been tactically adding growth exposure. We took advantage of the selloff in disruptors that comprise a large portion of the portfolio to initiate a position in enterprise software maker Workday.”
4. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Holders: 73
Snowflake Inc. (NYSE:SNOW) stock has gained strongly in the past few months after an average start to 2021. Analysts have been upgrading their price targets and upgrading the stock in recent weeks as positive third quarter results add to the positive momentum around the firm. In early December, Frank Slootman, the CEO of Snowflake Inc. (NYSE:SNOW), said that pent-up pandemic demand and strong trends towards data in the clouds had provided Snowflake Inc. (NYSE:SNOW) with a “potent cocktail” for growth in the coming years.
The third quarter results of Snowflake Inc. (NYSE:SNOW) show a Revenue Retention Rate of 173%, increasing margins, and strong research spend in a growing market that all add to the list of long-term growth catalysts for the company.
Here is what RiverPark Funds has to say about Snowflake Inc. (NYSE:SNOW) in its Q1 2021 investor letter:
“We also established a position in Snowflake during the quarter. Snowflake offers cloud-based data storage and analytics, generally termed “data warehouse-as-a-service.” The data warehousing market—created by the massive, growing amount of user, customer, and account data and the need to search and analyze it—has historically stored its data on physical servers located on-premises. The cloud data platform market—storing data off-premises on cloud servers—is a relatively new $70 billion+ market. Significantly, incremental warehouse data capacity and renewals are expected to be driven by and to the cloud, with more than 75% of databases in the cloud by 2022.
Snowflake requires absolutely no infrastructure management from its users, is fully scalable for each customer, runs on Amazon, Microsoft, or Google cloud platforms, and most critically, Snowflake helps companies analyze their data. The company also has a unique, customer-aligned billing model based on usage. All of which has led to Snowflake being among the leaders of this highly fragmented market, posting 124% revenue growth last year. SNOW’s growth comes from the combination of more customers—which grew 73% last year—and customers buying more services—the company boasts an amazing 150%+ net customer retention. The company’s growing scale has also led to increasing gross margin and operating leverage, up 1,100 basis points and 8,200 basis points, respectively, over the past two years. The company has guided to FCF break-even this year, and with the company’s capital expenditure-light model—Snowflake uses the public cloud for hosting—we expect FCF to grow much faster than revenue growth, which we forecast to grow comfortably more than 50% per year for the next several years. Additionally, we have great confidence in the SNOW management team, which previously had an enormously successful run guiding one of our other core Cloud software holdings ServiceNow.”
3. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 96
Goldman Sachs analyst Kash Rangan recently initiated coverage of Twilio Inc. (NYSE:TWLO) stock with a Buy rating and a price target of $350. The analyst noted that the cloud penetration in the communication sector, which had a market of close to $20 billion, was just 7% in 2020 and slated to grow to 29% in 2025. Twilio Inc. (NYSE:TWLO), as a market leader in this regard, will be one of the biggest beneficiaries of this growth.
Hedge funds remain bullish on Twilio Inc. (NYSE:TWLO) for 2022. California-based investment firm SCGE Management is a leading shareholder in Twilio Inc. (NYSE: TWLO) with 2.7 million shares worth more than $887 million.
In its Q3 2021 investor letter, RiverPark Funds, an asset management firm, highlighted a few stocks and Twilio Inc. (NYSE:TWLO) was one of them. Here is what the fund said:
“TWLO shares were also a top detractor for the quarter. Just like after 1Q, despite another quarterly beat in 2Q, management guidance–which we believe to be conservative–disappointed some investors. Second quarter revenue of $669 million was up 67% year over year, significantly exceeding management’s guidance of 47%-50% revenue growth. Management guided 3Q21 revenue to 50%-52% revenue growth, which was ahead of expectations, but due to continued investment also guided to a non-GAAP operating loss of $25 million-$30 million, which was below the Street’s forecast of a $12 million loss.
The COVID crisis has accelerated the adoption of the company’s cloud-based, integrated communications platform that allows companies in a wide range of businesses to embed digital communications capabilities (video, chat, voice, SMS, fax, and email) into their customer facing applications without needing to build back-end infrastructure and interfaces. Twilio’s total addressable market is now greater than $40 billion, which should grow by 50% over the next few years, providing a strong secular tailwind for the company. We expect the company’s gross margin to continue to expand from 54% in the second quarter toward management’s long-term goal of 60%-65%, and, as the company grows to scale, we expect its non-GAAP operating margin to expand to 25%.”
2. Salesforce.com, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 119
Salesforce.com, Inc. (NYSE:CRM) is one of many tech firms that have seen a broad correction in share price over the past few weeks as investors prepare for a rise in interest rates and a shift towards value plays. However, analysts remain bullish on Salesforce.com, Inc. (NYSE:CRM) for the long-term and have advised investors to buy the dip, arguing that the fundamentals of the firm remain strong, revenue growth looks likely to continue for years to come, and the overall growth profile of Salesforce.com, Inc. (NYSE:CRM) is unique to the cloud industry.
One of the reasons why analysts are this bullish on Salesforce.com, Inc. (NYSE:CRM) stock is because the company has a long history of smooth organic growth and aggressive acquisitions to keep pace with market developments. Salesforce.com, Inc. (NYSE:CRM) also spends heavily on research and development.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Salesforce.com, Inc. (NYSE:CRM) was one of them. Here is what the fund said:
“We added to our software-as-a-service (SaaS) exposure with the initiation of SaaS leader salesforce.com, which develops software for customer relationship management (we added Workday, which enterprise resource planning applications, last quarter). Saleforce.com is well-positioned in the most attractive end markets in software and will benefit from secular drivers such as remote work and the digital transformation. Salesforce.com is a sustainability leader as well, with a commitment to carbon-neutral cloud, toward which it has set a goal of 100% renewable energy for global operations by fiscal year 2022. The company has a strong focus on equality, in terms of equal rights, pay, education and opportunity. As a data company it has been leading on workforce disclosures and seeks to have 50% of its U.S. workforce made up of underrepresented groups by 2024.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 250
Microsoft Corporation (NASDAQ:MSFT) is one of the biggest tech companies in the world that has shifted focus to the cloud in recent years with the launch of the Azure suite of products. It is also one of the few dependable firms in the tech sector with regards to dividend payouts. Microsoft Corporation (NASDAQ:MSFT) has registered 17 consecutive years of dividend growth, a feat unmatched in the growth industry. Despite major changes in the tech industry, Microsoft Corporation (NASDAQ:MSFT) has remained relevant with new product launches.
Microsoft Corporation (NASDAQ:MSFT) stock has been a hedge fund favorite for years as well. Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT) with 25 million shares worth more than $7 billion.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
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