3 Best Cloud Computing Stocks To Buy Right Now
Cloud actions benefited during the pandemic as restrictions related to COVID-19 resulted in an increased need for cloud-based services. However, it also sent the price of many cloud stocks into the stratosphere as revenue growth increased across the industry.
Still, not all cloud stocks are trading at wacky valuations, and investors looking for reasonably priced cloud companies should consider Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), and Quickly (NYSE: FSLY). Let’s find out a bit more about these top three cloud computing titles and see if they are good buys right now.
Google’s parent, Alphabet, is best known for its search engine, YouTube, and the Android operating system. Since many of these applications require a large presence in data centers around the world, the company has become a natural game in the cloud. Thus, it can combine storage, development tools, security tools and other functions of cloud infrastructure providers with its applications, global network and big data capabilities to foster competitive advantage. According to ParkMyCloud, the company claims 7% of global cloud infrastructure spending, trailing only Amazon and AWS. MicrosoftAzure in market share.
Additionally, in the first six months of fiscal 2021, Google Cloud made a significant contribution to Alphabet’s revenue growth. Alphabet’s overall revenue for the first two quarters of fiscal 2021 increased by 47% compared to the first six months of 2020. During the same period, Google Cloud increased its revenue by 50%. This far exceeds the 19% compound annual growth rate forecast for the industry, predicted by Grand View Research.
The company did not offer a outlook for the coming quarters, only mentioning in its second quarter 2021 earnings call that it would experience a “more moderate tailwind for revenues” in the third quarter. Nonetheless, the stock has increased by almost 80% over the past year. Despite this increase, the current P / E ratio of 36 is in line with historical averages. This means that the gains could continue, even with weak tailwinds.
Amazon holds an advantage among cloud providers because it pioneered the industry when it launched AWS in 2002. Initially created to help merchants launch online stores, it eventually evolved into a shared computing platform. for multiple purposes. Over time, tech companies would copy this concept, and it has spawned growth in old and new tech companies as IT departments strive to move applications to the cloud.
Despite innovation and competition, AWS leads the industry. According to ParkMyCloud, AWS continues to have a 32% market share of cloud infrastructure spending, well above the 19% held by Microsoft’s Azure.
For the first six months of fiscal 2021, net sales increased 35% to $ 221.6 billion. Net income jumped 104% to $ 15.9 billion during this period, with Amazon generating nearly $ 3 billion in revenue from sources such as equity investments and foreign currency transactions. Additionally, investors should note that AWS accounted for just over half of Amazon’s operating revenue despite less than 13% of the company’s net sales.
Admittedly, the uncertainty hangs over Amazon for the moment. Investors ditched stocks after second quarter earnings, in part because the third quarter forecast calls for sales to increase in the range of 10-16%. In addition, its stock has only increased by about 10% in the past year. Nonetheless, its P / E ratio of around 64 has been the lowest for several years, and once Amazon gets past post-pandemic uncertainty, its multiple could start to look cheap.
Investors looking for small cloud companies should also consider Fastly. Fastly benefited from edge computing, a technology that brings the benefits of cloud computing closer to the end user. Its competitive advantage lies in its content development networks (CDNs). Calling themselves a “platform designed for all your builders,” developers can tailor the CDN to their needs, resulting in faster speeds and updates.
The attractiveness of these CDNs has considerably increased its turnover. In the first quarter of 2021, revenue increased 35% from last year’s levels to $ 85 million. Losses jumped $ 51 million during that period as operating expenses rose more than 100%. Additionally, it delayed FY20 performance slightly, as revenue for that year increased 45% from FY2019 to $ 291 million, while net losses increased to $ 96. million dollars during this period. Rising stock-based compensation costs accounted for most of this increase.
In addition, projections for fiscal 2021 point to an increase in revenues of 23%, which would indicate a further slowdown in growth. This deceleration prompted investors to sell the stock, and it has fallen about 60% since February.
Yet this decline created a unique buying opportunity. With a price / sales (P / S) ratio of just 17, Fastly is considerably less expensive than its direct competitors such as Cloudflare or DataDog, which support P / S ratios of 77 and 52, respectively. And as the stock has fallen so far despite massive growth, investors could benefit as its valuation catches up with its more expensive peers.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.