We recently compiled a list of the Worst Cloud Stocks To Buy According to Short Sellers. In this article, we will look at where Samsara Inc. (NYSE:IOT) 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).
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.”
Overall IOT ranks 2nd on our list of the worst cloud stocks to buy according to short sellers. While we recognize the potential of IOT 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 IOT 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.
