In this article, we discuss the 13 best cloud stocks to buy now.
The cloud sector has been pummeled in recent weeks after the Federal Reserve indicated that interest rate hikes are on the way, resulting in a mass exodus from growth towards value at the market. The cloud industry has outperformed the broader industry by a wide margin over the past decade. The BVP Cloud Index, created by Bessemer Venture Partner and comprising cloud companies, has gained more than 900% since 2013. This is triple the gain of the growth-heavy NASDAQ during the period, indicating the performance of the cloud industry within the tech sector, and almost five times the gains of the benchmark S&P 500.
Buying The Dip and Future Trends In Cloud Market
This is why investors are a little confused with regards to investing in cloud plays. However, analysts have urged investors to buy the dip in cloud stocks given the strong fundamentals of cloud firms and growth catalysts moving forward. Some of the top cloud stocks to buy now include Microsoft Corporation (NASDAQ:MSFT), Salesforce.com, Inc. (NYSE:CRM), and Twilio Inc. (NYSE:TWLO), among others discussed in detail below.
According to predictions from Gartner, a tech research firm, the global spending on cloud services will climb from $313 billion in 2020 to around $480 billion in 2022, with Internet-of-Things (IoT) infrastructure and virtual reality advances leading the way. Sustainability and the rise of serverless operations are also likely to be important industry trends that investors should keep eye on when investing in the sector.
Our Methodology
The companies that operate in the cloud sector were selected for the list through a careful assessment of business fundamentals and analyst ratings to provide readers with some context for their investment choices.
Hedge fund sentiment was included as a classifier as well. The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey.
Photo by Science in HD on Unsplash
Best Cloud Stocks To Buy Now
13. DigitalOcean Holdings, Inc. (NYSE:DOCN)
Number of Hedge Fund Holders: 27
DigitalOcean Holdings, Inc. (NYSE:DOCN) is a cloud computing platform that focuses on startups and developers. In the fast growing cloud sector, this focus has separated DigitalOcean Holdings, Inc. (NYSE:DOCN) from other cloud firms. DigitalOcean Holdings, Inc. (NYSE:DOCN) went public in 2021 and the share price has nearly doubled since then. DigitalOcean Holdings, Inc. (NYSE:DOCN) provides cheaper services compared to competitors and has a better retention rate. The firm is also working to improve margins while retaining small customers.
Hedge funds are also bullish on the future of DigitalOcean Holdings, Inc. (NYSE:DOCN) in the competitive cloud sector. 27 hedge funds in the database of Insider Monkey held stakes worth $758 million in DigitalOcean Holdings, Inc. (NYSE:DOCN) at the end of September 2021, up from 16 in June 2021 worth $219 million.
Just like Microsoft Corporation (NASDAQ:MSFT), Salesforce.com, Inc. (NYSE:CRM), and Twilio Inc. (NYSE:TWLO), DigitalOcean Holdings, Inc. (NYSE:DOCN) is one of the stocks that hedge funds are buying.
12. NetApp, Inc. (NASDAQ:NTAP)
Number of Hedge Fund Holders: 29
JPMorgan analyst Samik Chatterjee recently upgraded NetApp, Inc. (NASDAQ:NTAP) stock to Overweight from Neutral and raised the price target to $110 from $108, noting that NetApp, Inc. (NASDAQ:NTAP) seemed “well positioned” to transition towards higher growth opportunities while being the leader in the enterprise storage sector. The analyst touted the potential of NetApp, Inc. (NASDAQ:NTAP) as companies moved towards “all-flash arrays” in the cloud.
NetApp, Inc. (NASDAQ:NTAP) is among a handful of cloud companies with an impressive dividend history, giving the stock a healthy blend of growth and value for investors. NetApp, Inc. (NASDAQ:NTAP) has registered eight consecutive years of dividend growth and recently declared a quarterly dividend of $0.50 per share. The forward yield was 2.25%.
In its Q3 2021 investor letter, Miller Howard Investments, an asset management firm, highlighted a few stocks and NetApp, Inc. (NASDAQ:NTAP) was one of them. Here is what the fund said:
“Technology remains important in our portfolios, although the sector weights have come down over the past year. We now hold NetApp (NTAP) of which has a strong growth prospects, yet attractive valuations in our view. Unlike many younger tech companies, we believe our holdings should significantly benefit from an upturn in the economy.”
11. Dynatrace, Inc. (NYSE:DT)
Number of Hedge Fund Holders: 41
Dynatrace, Inc. (NYSE:DT) provides software intelligence for multi-cloud environments. As businesses go digital, many companies have to manage multiple cloud operations. Dynatrace, Inc. (NYSE:DT) provides services that can make that complexity easier to manage. The company has also integrated artificial intelligence onto the Dynatrace, Inc. (NYSE:DT) platform and has been adding customers rapidly in the past few years.
Major hedge funds have expressed confidence in the business model of Dynatrace, Inc. (NYSE:DT) over the past few months. California-based investment firm HMI Capital is a leading shareholder in Dynatrace, Inc. (NYSE:DT) with 5 million shares worth more than $357 million.
Here is what Polen Capital has to say about Dynatrace, Inc. (NYSE:DT) in its Q3 2021 investor letter:
“Dynatrace outperformed during the quarter as the company reported earnings results that handily beat expectations. The company continues to increase its customer base and has expanded net revenues with existing customers.”
10. RingCentral, Inc. (NYSE:RNG)
Number of Hedge Fund Holders: 48
RingCentral, Inc. (NYSE:RNG) offers investors an attractive entry point in the high growth cloud sector that has seen share price skyrocket in recent years. Compared to peers, RingCentral, Inc. (NYSE:RNG) is cheaper since the stock is trading at near a 52-week low after the departure of high-profile executives from the firm. However, with RingCentral, Inc. (NYSE:RNG) slated to grow revenues by over 30% for the next few years, solid legacy partnerships, and compelling products, analysts recommend buying the stock aggressively during the sell-off.
Evercore ISI analyst Peter Levine recently named RingCentral, Inc. (NYSE:RNG) as a favorite rebound idea for 2022 and said the stock was valued at below pre-pandemic levels with a favorable growth profile and a “disciplined approach to profitability”. The analyst has an Outperform rating on RingCentral, Inc. (NYSE:RNG) stock with a price target of $275.
Like Microsoft Corporation (NASDAQ:MSFT) and Salesforce.com, Inc. (NYSE:CRM), RingCentral, Inc. (NYSE:RNG) remained a popular tech stock among hedge funds.
Here is what Baron Opportunity Fund has to say about RingCentral, Inc. (NYSE:RNG) in its Q2 2021 investor letter:
“RingCentral, Inc. (NYSE:RNG) has been a three-year portfolio holding and remains a leader in the cloud unified communications-as-a-service (UCaaS) space, which includes voice, video, messaging, and call center services. But after posting its third quarter in a row of accelerating revenue growth in the first quarter, RingCentral’s shares began to sell off on fears around heightened competition with both Microsoft Teams, of which RingCentral is a partner, and with Zoom Communications, a former partner who has launched its own voice communications offering. Shares sold off further during the period with the rotation out of secular growth names into cyclicals. We used the pullback in the shares to add significantly to our position given RingCentral’s best-in-class UCaaS technology, including five 9’s contractual service commitments (fully operational 99.999% of the time) for voice, which is orders of magnitude above its competitors; presence in roughly 40 countries; data governance and security requirements; number portability with all the relevant domestic and international carriers; and positioning as the Gartner Magic Quadrant UCaaS Leader. The UCaaS market is still quite early in its adoption curve, with only about 3% penetration of the roughly 400 million existing business landline seats in operation today. We believe RingCentral is in a solid position to capture meaningful share of this market, with its exclusive partnerships with legacy landline players like Avaya, Atos, and Alcatel, which effectively gives it a “hunting license” for about half of those 400 million legacy seats, leveraging joint go-to-market efforts with each partner. We remain confident that RingCentral, Inc. (NYSE:RNG) is well positioned to achieve at least 30% top-line growth for years to come, along with steadily improving operating margins and free cash flow generation.”
9. Cloudflare, Inc. (NYSE:NET)
Number of Hedge Fund Holders: 50
Cloudflare, Inc. (NYSE:NET) has grown revenue by 50% consistently over the past five years, a feat that makes the firm stand a mile apart from the competition in the cloud sector. This consistency is primarily based on the incredible popularity of the Content Delivery Network of Cloudflare, Inc. (NYSE:NET), the preferred cloud product for major retailers and commercial enterprises for fast and efficient processing. Cloudflare, Inc. (NYSE:NET) looks set to continue this trend in 2022.
Hedge funds have also backed Cloudflare, Inc. (NYSE:NET) to perform well in 2022. Chicago-based investment firm Citadel Investment Group is a leading shareholder in Cloudflare, Inc. (NYSE:NET) with 1.1 million shares worth more than $129 million.
In its Q4 2020 investor letter, Alger Mid Cap Focus Fund, an asset management firm, highlighted a few stocks and Cloudflare, Inc. (NYSE:NET) was one of them. Here is what the fund said:
“Cloudflare, Inc. (NYSE:NET) provides a broad range of network services to businesses of all sizes across the world. Cloudflare’s intelligent global network spans more than 200 cities in over 100 countries. It offers network security, performance and reliability to a growing portion of global web traffic. Today. over 15% of global internet requests go through Cloudflare. Cloudflare’s serverless network design allows this global network to be a key component layer as new developments for edge cornputing. 5G and Internet of Things increase the importance of secure. reliable edge networks. Cloudflare stock outperformed in the fourth quarter following the announcement of Cloudflare One, a cloud-bas. network-as-a-service platform designed to replace the traditional enterprise network infrastructure. The Cloudflare One solution merges existing Cloudflare access and security solutions along with new enterprise-specific features into a unified Zero Trust network that can be managed through a single “pane of glass.” or display screen. With the rapid shift to remote work caused by the pandemic, this product increases Cloudflare’s potential for winning business from enterprise customers seeking to adapt to this new business environment.
While Cloudflare One adoption is still early. Cloudflare, Inc. (NYSE:NET) has already started to demonstrate an improved ability to sell to large customers. When discussing its third quarter results. Cloudflare said that it is continuing to sign up larger enterprise customers. including its first client to generate more than $10 million in annual recurring revenue. Cloudflare has just started to better monetize its more than 100.000 paying customer base. which along with continued product innovation, gives the company strong growth potential.”
8. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 56
Oracle Corporation (NYSE:ORCL) stock has registered a sharp decline since the company announced that it would be entering the health sector with the purchase of IT firm Cerner for $28 billion in late December 2021. Monness Crespi analyst Brian White has urged investors to buy the stock amid the sell-off, noting that Oracle Corporation (NYSE:ORCL) is a ‘high-quality value play” that looks set to cash in on the cloud transformation sweeping the world. The analyst has a Buy rating and a $126 price target on the shares.
Oracle Corporation (NYSE:ORCL) has been a hedge fund favorite for many years. At the end of the third quarter of 2021, 56 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Oracle Corporation (NYSE:ORCL), up from 55 in the preceding quarter worth $2.8 billion.
Here is what Ariel Investments has to say about Oracle Corporation (NYSE:ORCL) in its Q1 2021 investor letter:
“A temporary factor might be a downturn in the high-yield bond market driving up LBO financing costs for the decline in 2021 GAAP revenue for Oracle Corporation (ORCL) due to a change in accounting methods. In all these examples, stock prices were driven well-below our calculations of intrinsic value. We invested in each company with good outcomes. Later, we will offer instances when this strategy is not successful.”
7. Anaplan, Inc. (NYSE:PLAN)
Number of Hedge Fund Holders: 61
Anaplan, Inc. (NYSE:PLAN) owns and runs a cloud-based connected planning platform. The platform provides real-time data calculations and operates as a single source of information for business planning centered around these calculations. Anaplan, Inc. (NYSE:PLAN) services are utilized in industries such as finance, sales, and supply chain, among others. Morgan Stanley analyst Stan Zlotsky has an Equal Weight rating on Anaplan, Inc. (NYSE:PLAN) stock with a price target of $55.
Evercore ISI recently named Anaplan, Inc. (NYSE:PLAN) among a list of stocks poised to bounce back in 2022 after underperforming in 2021. The investment advisory cited new customer additions and a new CFO as some of the reasons why the 2022 and 2023 revenue estimate for Anaplan, Inc. (NYSE:PLAN) looked “conservative”.
Here is what Alger has to say about Anaplan, Inc. (NYSE:PLAN) in its Q1 2021 investor letter:
“Anaplan, Inc. (NYSE:PLAN) was among the top detractors from performance. Anaplan is a leading provider of cloud-based business planning software. Anaplan’s software platform aims to solve the most complex planning needs of large global enterprises across various business lines. Unlike traditional business planning software, which is often rigid, siloed and opaque, Anaplan’s platform is designed to enable broader enterprise participation and better workforce collaboration during the business planning process. Through better planning, large enterprises can more effectively allocate resources to cut costs and generate revenue. Today Anaplan has over 1,600 customers across a variety of end markets and business use cases.
Anaplan, Inc. (NYSE:PLAN) shares underperformed in the first quarter as part of a broader sector rotation as high-growth software stocks fell out of favor relative to more cyclically exposed investment opportunities. We believe Anaplan’s focus on growth over near-term profit generation negatively impacts the company’s stock in a rising interest rate environment.
Fundamentally, Anaplan had strong fourth quarter earnings result, with the company seeing an acceleration of billings growth and a strong demand pipeline as companies realize the need for a more flexible digital planning solution.”
6. Okta, Inc. (NASDAQ:OKTA)
Number of Hedge Fund Holders: 62
Wells Fargo analyst Andrew Nowinski recently initiated coverage of Okta, Inc. (NASDAQ:OKTA) stock with an Overweight rating and a price target of $275, underlining that the firm had the “most comprehensive identity security platform” on the market. The analyst backed Okta, Inc. (NASDAQ:OKTA) to retail revenue growth at above 35% for the coming years based on the solidity of the cloud security product.
Okta, Inc. (NASDAQ:OKTA) remains on the radar of elite hedge funds. At the end of the third quarter of 2021, 62 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in Okta, Inc. (NASDAQ:OKTA), up from 57 in the preceding quarter worth $2 billion.
Alongside Microsoft Corporation (NASDAQ:MSFT), Salesforce.com, Inc. (NYSE:CRM), and Twilio Inc. (NYSE:TWLO), Okta, Inc. (NASDAQ:OKTA) is one of the stocks attracting the attention of elite investors.
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.”
You can also take a peek at Forget Tesla (TSLA): 10 Cheap EV Stocks to Buy Now and 15 Best Consumer Discretionary Stocks to Buy Now.
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Disclosure. None. 13 Best Cloud Stocks To Buy Now is originally published on Insider Monkey.
