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.”
3. Workday, Inc. (NASDAQ: WDAY)
Number of Hedge Fund Holders: 72
Year-on-Year Revenue Growth: 16.98%
Workday, Inc. (NASDAQ: WDAY) is a California-based firm that provides enterprise cloud applications. It is ranked third on our list of 10 cloud software stocks with strong growth potential.
On September 2, investment advisory Jefferies maintained a Buy rating on Workday, Inc. (NASDAQ: WDAY) stock and raised the price target to $320 from $300, noting the impact of investments by the firm into the workforce.
At the end of the second quarter of 2021, 72 hedge funds in the database of Insider Monkey held stakes worth $5.18 billion in Workday, Inc. (NASDAQ: WDAY), up from 69 in the previous quarter worth $5.17 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.”
2. Salesforce.com, Inc. (NYSE: CRM)
Number of Hedge Fund Holders: 108
Year-on-Year Revenue Growth: 21.46%
Salesforce.com, Inc. (NYSE: CRM) is placed second on our list of 10 cloud software stocks with strong growth potential. The firm provides cloud computing solutions and is headquartered in California.
On August 26, investment advisory RBC Capital assumed coverage of Salesforce.com, Inc. (NYSE: CRM) stock with an Outperform rating and a price target of $310, noting the firm had delivered strong quarterly results with margin upside.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Salesforce.com, Inc. (NYSE: CRM) with 13.4 million shares worth more than $3.2 billion.
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: 238
Year-on-Year Revenue Growth: 17.53%
Microsoft Corporation (NASDAQ: MSFT) is ranked first on our list of 10 cloud software stocks with strong growth potential. The firm operates from Washington and provides software services for a host of applications.
On August 20, investment advisory UBS maintained a Buy rating on Microsoft Corporation (NASDAQ: MSFT) stock and raised the price target to $350 from $325. Karl Keirstead, an analyst at the firm issued the ratings update.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ: MSFT) with 24.8 million shares worth more than $6.7 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.”
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