The cloud-computing space is one that investors should be watching closely. Over the last decade, the shift from physical data centers to keeping everything in the cloud has been monumental and every big-name tech firm out there has their hat in the ring. That being said, not all cloud computing services are created equal and traders should take a hard look at what each company has to offer before blindly throwing money at any of the cloud stocks out there.
While a few big names have emerged as cloud computing leaders over the last few years, the industry’s relative newness means that there is still a lot of room for growth.
Tech stocks with a solid plan for the future, a compelling growth story and enough financial strength to support said plans are few and far between. Because cloud computing fits in so seamlessly with what many firms are already doing, it’s also difficult to find a pure play in cloud stocks.
That being said, with more big businesses shifting their data to the cloud, it is a necessity for every portfolio. The following are four tech stocks to buy because of their solid position in the cloud-computing space.
Tech Stocks That Are Dominating in Cloud Computing: Amazon.com, Inc. (AMZN)
It would be impossible to talk about great cloud computing companies without mentioning Amazon.com, Inc. (NASDAQ:AMZN). Best known for its massive e-commerce presence, AMZN is also a top dog in the cloud-computing space.
Amazon’s cloud computing arm is a market leader, with the largest cloud computing capacity being used at the moment. Amazon Web Services boasts not only the largest network, but the company is also one of the oldest and most mature players in the industry as well.
AMZN has also been able to make growing competition within the space work for its business by partnering with former rival VMware, Inc. (NYSE:VMW). The two firms recently decided to link their public and private cloud networks making it possible for customers to use existing VMware software together with AWS.
This development has made both cloud stocks significantly more desirable as it makes both services much more accessible.
Tech Stocks That Are Dominating in Cloud Computing: Microsoft Corporation (MSFT)
Tech giant Microsoft Corporation (NASDAQ:MSFT) is the runner up when it comes to the largest cloud computing firms, but many argue that MSFT’s approach to cloud computing is the most innovative.
The company’s most recent earnings report showed that its “intelligent cloud” business increased to $6.4 billion this year, an 8% increase. MSFT doesn’t break out its Azure cloud computing revenue, but that’s because the company believes in a hybrid model that incorporates both cloud computing infrastructure as well as services and productivity software like Microsoft Word and PowerPoint.
Microsoft has a leg up in that respect, because the company’s well-known software is already in use at big-name businesses around the world. That means that when a business is ready to shift its data into the cloud, MSFT’s Azure is often the most logical choice for the sake of continuity.
Microsoft has also made a name for itself in the artificial intelligence and machine learning space, so although some of the firm’s most appealing tools aren’t quite ready to be used yet, there is a lot of growth potential for Azure.
These kinds of offerings, when they are fully developed, will be a major draw for new business to MSFT.
Tech Stocks That Are Dominating in Cloud Computing: Zendesk Inc (ZEN)
Zendesk Inc (NYSE:ZEN) is considerably smaller and riskier than AMZN and MSFT, but that doesn’t make it a bad choice. In fact, ZEN stock may be a better bet for investors in cloud stocks with a healthy appetite for risk.
While firms like Microsoft and Amazon have several other business segments to keep them afloat, Zendesk is a pure cloud computing play, offering a cloud-based customer service desk.
While the firm’s substantially smaller size and customer base adds a healthy dose of risk to ZEN stock, the company’s impressive growth is hard to ignore. Over the past year, Zendesk has increased its revenue by more than 50%. ZEN has added new customers at a jaw-dropping rate as well, with new accounts increasing from 69,000 to 81,000 over the course of a year.
Zendesk is also rolling out new products and analytics devices that are intended to deliver value beyond just offering a customer service platform. While it’s true that ZEN stock’s price already reflects its high growth, the firm is unlikely to slow down in the near-term. For that reason, it stands out among other cloud stocks.
Tech Stocks That Are Dominating in Cloud Computing: Box Inc (BOX)
Of all the cloud stocks on this list, Box Inc (NYSE:BOX) is the riskiest. Box provides a cloud-based platform to both enterprises and individuals, which allows it to manage and access content on any device.
Since going public in 2015, the firm has yet to turn a profit, which has been a cause for concern among investors (BOX stock is down 34% over the last two years).
However, 2016 has proven to be a good one for the company so far and it now could be a good time to get on board in order to reap the benefits of the company’s efforts to generate a profit. In the first year after its IPO, BOX burned some $144 million worth of cash, but the company also set itself up for explosive growth in the future. The firm was able to grow its revenue by about 40% between fiscal year 2015 and 2016 and it has taken meaningful steps toward expansion.
BOX has secured partnerships with big names like International Business Machines Corp. (NYSE:IBM), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and MSFT over the last year, which is a good sign for the company’s forward momentum.
The firm is also taking its services overseas, with new offices in Europe and approval from regulators in the U.K., Poland and Spain to operate a cloud network that works across borders. These developments signal big things ahead for BOX and make now a good time to buy.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.