We recently compiled a list of the Worst Cloud Stocks To Buy According to Short Sellers. In this article, we will look at where Dropbox, Inc. (NASDAQ:DBX) stands against the 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).
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.
Overall DBX ranks 3rd on our list of the worst cloud stocks to buy according to short sellers. While we recognize the potential of DBX 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 DBX and trading at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.