In this article, we will discuss the 12 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.
5. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Funds: 73
Snowflake Inc. (NYSE:SNOW) is a supplier of data warehousing platforms that leverages cloud technology. The Bozeman, Montana-based organization caters to over 5,400 customers and has 250 petabytes (PB) of data under management. The company’s leading offering is the Data Cloud that allows organizations to collate data and utilize it to obtain meaningful information.
Snowflake Inc. (NYSE:SNOW) reported strong Q3 2021 results that outperformed consensus revenue and EPS estimates. The corporation reported revenue of $334.4 million and a loss per share of 51 cents per share. In comparison, analysts anticipated the company to report revenue of $306.1 million with a loss per share of 61 cents. Furthermore, Snowflake Inc. (NYSE:SNOW) reported a CRPO of $1.8 billion, an increase of 94% from the same quarter last year.
On December 2, Tyler Radke at Citi upgraded the stock from a Neutral to a Buy rating and increased the target price on Snowflake Inc. (NYSE:SNOW) from $299 to $470. The analyst highlighted that the growth of the organization is at an “inflection point” following the “very strong” Q3 2021 results.
In its Q3 2021 investor letter, RiverPark Funds shared its stance on Snowflake Inc. (NYSE:SNOW). Here’s what the investment management firm said:
“Following torrid second-quarter results, Snowflake, a position we initiated in March, was also a top contributor for 3Q. The company reported 103% year-over-year product revenue growth, 169% net revenue retention and a 74% non-GAAP gross margin, up 700 basis points year over year. Management also raised guidance to 92% product revenue growth for the full year.
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. Incremental warehouse data capacity and renewals are expected to be stored off-premises on cloud servers, with more than 75% of databases projected to move to the cloud by 2022, resulting in a nearly $100 billion market.
Snowflake provides complex data management and analytical tools for its customers, eliminates the need for users to manage infrastructure, is fully scalable for each customer, and can be run on any of the Amazon, Microsoft, or Google cloud platforms. The company also has a unique, customer-aligned billing model based on usage. 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.”
4. Palo Alto Networks, Inc. (NASDAQ:PANW)
Number of Hedge Funds: 73
Palo Alto Networks, Inc. (NASDAQ:PANW) is a cybersecurity company that provides advanced firewalls and cloud-based products and services that secure clouds, mobile devices, and networks. The Santa Clara, California-based corporation has more than 85,000 customers spread across over 150 countries.
On November 23, Joseph Bonner at Argus increased the price target on Palo Alto Networks, Inc. (NASDAQ:PANW) from $530 to $620 and maintained a Buy rating on the stock. The analyst commented that the recent cybersecurity attacks have highlighted the significance of strong cybersecurity in place across every level of government and the private sector. Bonner added that the importance of cybersecurity rose further after the Presidential Executive Order in May 2021. The analyst positions Palo Alto Networks, Inc. (NASDAQ:PANW) as a distinguished and robust player in the extremely disjointed but swiftly growing enterprise cybersecurity industry.
Out of the 867 hedge funds being tracked by Insider Monkey, 73 reported owning a stake in Palo Alto Networks, Inc. (NASDAQ:PANW) at the end of Q3, up from 69 in the last quarter.
Palo Alto Networks, Inc.’s (NASDAQ:PANW) stock price has increased by over 49% in 2021, outperforming the S&P 500 Index and First Trust Cloud Computing ETF (NASDAQ:SKYY), which experienced an increase of 27% and 15%, respectively.
3. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Funds: 95
Adobe Inc. (NASDAQ:ADBE) is a software company that is transforming itself into a software-as-a-service (SaaS) cloud provider. Adobe Creative Cloud and Adobe Experience Cloud are leading the company’s efforts in that direction. The San Jose, California-based organization, is known for providing a wide range of software required for the creation and publication of content with millions of users globally.
On November 22, Peter Hazel at Atlantic Equities upgraded Adobe Inc. (NASDAQ:ADBE) from a Neutral to an Overweight rating and increased the price target from $600 to $820. The analyst thinks that as a result of the Creative Cloud platform, Adobe Inc. (NASDAQ:ADBE) is in a “dominant position” in the industry. Adobe Inc. (NASDAQ:ADBE) also has high pricing power on its side that will aid it in maintaining its market share. The company is expected to experience revenue growth in the mid-teens along with expansion in margins.
2. Twilio Inc. (NYSE:TWLO)
Number of Hedge Funds: 96
Twilio Inc. (NYSE:TWLO) is a cloud communications platform as a service (CPaaS) organization that provides customer engagement platforms to numerous organizations and more than ten million developers globally.
On December 16, Kash Rangan at Goldman Sachs started coverage of Twilio Inc. (NYSE:TWLO) with a Buy rating and a $350 price target. In a research note issued to investors, the analyst shared that the $19 billion cloud total addressable market in 2020 indicates a cloud penetration of 7% in 2020. Kash expects the rate to rise to 29% in 2025. According to the analyst, Twilio Inc. (NYSE:TWLO) is at the core of client engagement, and the pandemic further elevated the company’s value proposition by highlighting the benefits of its stack.
In addition to this, ARK investment bought nearly 400,000 shares of Twilio Inc. (NYSE:TWLO) following the sell-off. Of the 867 hedge funds being tracked by Insider Monkey, 96 reported owning a stake worth $6.37 billion in Twilio Inc. (NYSE:TWLO) at the end of Q3 2021.
1. Salesforce.com inc. (NYSE:CRM)
Number of Hedge Funds: 119
Salesforce.com inc. (NYSE:CRM) is known for providing cloud-based software products and services. The San Francisco, California-based company founded in 1999 is one of the pioneers in the cloud computing industry and has been able to grow through acquisitions and from innovation within.
Salesforce.com inc. (NYSE:CRM) reported mixed Q3 2021 results on November 30. Revenue was $6.86 billion compared to the consensus estimate of $6.8 billion. Adjusted EPS for the quarter was $1.27, as opposed to the analysts’ forecast of 92 cents. Salesforce.com inc. (NYSE:CRM) anticipates revenue to be around $7.22 billion to $7.23 billion and an adjusted EPS of 72 cents to 73 cents in Q4 2021.
Of the 867 hedge funds in Insider Monkey’s database, 119 owned a stake in Salesforce.com inc. (NYSE:CRM) at the end of Q3, up from 108 in the preceding quarter.
In a research note issued on December 1, Brent Thill at Jefferies highlighted that Salesforce.com inc. (NYSE:CRM) reported “solid results” for Q3 2021 as it outperformed CRPO, revenue, and EPS estimates. The analyst reiterated a Buy rating with a $360 price target.
Vulcan Value Partners discussed its stance on Salesforce.com inc. (NYSE:CRM) in its Q3 2021 investor letter. Here’s what the investment management firm said:
“Salesforce.com Inc., a material contributor for the quarter, is the dominant provider of customer relationship management (CRM) software and technology. Salesforce has high retention rates, pricing power, a large and growing addressable market, high free cash flow, and a competitive moat. The company continues to execute well, and we believe the global pandemic has only improved its prospects and future returns.”
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Disclose. None. 12 Best Cloud Computing Stocks For 2022 is originally published on Insider Monkey.
