In this article, we discuss the 5 cloud software stocks with strong growth potential. If you want to read our detailed analysis of these stocks, go directly to the 10 Cloud Software Stocks with Strong Growth Potential.
5. Okta, Inc. (NASDAQ: OKTA)
Number of Hedge Fund Holders: 57
Year-on-Year Revenue Growth: 44.76%
Okta, Inc. (NASDAQ: OKTA) is ranked fifth on our list of 10 cloud software stocks with strong growth potential. The firm provides identity management platforms for business clients and operates from California.
On September 3, investment advisory Deutsche Bank maintained a Buy rating on Okta, Inc. (NASDAQ: OKTA) stock and raised the price target to $270 from $265, noting that the quarterly results of the firm were unlikely to quash a debate among bears and bulls on the firm.
At the end of the second quarter of 2021, 57 hedge funds in the database of Insider Monkey held stakes worth $2 billion in Okta, Inc. (NASDAQ: OKTA), up from 48 in the preceding quarter worth $1.6 billion.
4. Snowflake Inc. (NYSE: SNOW)
Number of Hedge Fund Holders: 70
Year-on-Year Revenue Growth: 111.39%
Snowflake Inc. (NYSE: SNOW) is a California-based company that owns and runs a cloud platform for business analytics. It is placed fourth on our list of 10 cloud software stocks with strong growth potential.
On August 26, investment advisory Cowen maintained an Outperform rating on Snowflake Inc. (NYSE: SNOW) stock and raised the price target to $335 from $310, noting that the firm was performing well across all geographies.
At the end of the second quarter of 2021, 70 hedge funds in the database of Insider Monkey held stakes worth $12.5 billion in Snowflake Inc. (NYSE: SNOW), down from 71 in the preceding quarter worth $12.9 billion.
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.”
