3 Big-Time Cloud Stocks With Monster Growth Potential

Advertisement

cloud stocks - 3 Big-Time Cloud Stocks With Monster Growth Potential

Source: Shutterstock

In the stock market, you have to be careful of buzz words.

A prime example of why is the blockchain bubble. When bitcoin and other cryptocurrencies were soaring in late 2017, it seemed like everyone and their best friend wanted to jump into the blockchain craze. So entire companies pivoted their business models and re-branded themselves to be a “blockchain” company. The buzz word “blockchain” sent the stocks of these reformed companies soaring.

But, soon enough, that bubble popped. The stocks of all these companies that soared just because they used the buzz word “blockchain”, collapsed.

The lesson? Don’t buy buzz words. Buy secular growth narratives.

To that end, “cloud” is arguably a buzz word. But there is actually a strong secular growth narrative behind that buzz word. Every company in the world is pivoting to the cloud, to both store and analyze what is a growing volume of consumer and enterprise data. As such, companies that are providing cloud services globally are naturally supported by strong fundamentals, and buying cloud stocks is buying a secular growth narrative, not a buzz word.

With that in mind, here is a list of three big-time cloud stocks which are supported by secular growth narratives and have monster growth potential over the next several years.

Big-Time Cloud Stocks To Buy 1: Amazon (AMZN)

Source: Shutterstock

The discussion of big-time cloud stocks with monster growth potential starts with the market leader, Amazon.com, Inc. (NASDAQ:AMZN).

Better known for its giant e-commerce business which fundamentally changed retail, Amazon also operates the world’s largest cloud infrastructure services business, Amazon Web Services (AWS). Although competing cloud platforms from Microsoft (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOG) have gained market share in this market over the past several quarters, AWS has consistently maintained its head-and-shoulders lead above the competition at 30%-plus market share.

AWS maintaining its massive cloud market share even amid big pushes from Microsoft and Google is a testament to just how robust and superior AWS is. Indeed, AWS is so good that Amazon’s commerce competitors are giving money to the company through AWS. Notably, Amazon’s e-commerce competitor Zulily migrated its infrastructure to AWS recently.

Moreover, AWS is set to get a big boost over the next several years as the U.S. government modernizes and migrates its technology infrastructure to the cloud. The U.S. government is set to announce a winner for its 10 year, $10 billion Joint Enterprise Defense Infrastructure (JEDI) commercial cloud contract within the next several months.

AWS is not only the largest cloud infrastructure platform in the world by a mile, but it is also the only cloud infrastructure platform which the government has trusted before with classified data (AWS won a $600 million CIA contract in 2013). Consequently, AWS is the unrivaled front-runner to win the JEDI contract.

If that does happen, AWS growth could get a big boost not just from the $10 billion contract itself, but also from the reputation boost that comes with winning such a contract. AWS market share will naturally grow, and that will lead to even bigger growth across the entire Amazon ecosystem.

All together, thanks to AWS, Amazon is a big-time cloud stock with monster growth potential over the next several years.

Big-Time Cloud Stocks To Buy 2: Adobe Systems Incorporated (ADBE)

Source: Shutterstock

Lesser know than Amazon, Adobe Systems (NASDAQ:ADBE) is arguably more dominant in its segment of cloud services.

Adobe provides cloud-hosted, subscription solutions to creative professionals across the globe. And they are really, really good at it. So good that there aren’t really any noteworthy competitors in this space. Just check out this list or this list of Adobe Photoshop alternatives. None of them are household names. Nor do any of them offer products even close in quality to Adobe’s offerings.

This dominant positioning in a highly specialized niche of the secular growth cloud market inherently gives Adobe healthy and robust long-term growth prospects. Competitors won’t knock this company off. Nor will they challenge the company on pricing, so the outlook for consistent price hikes over the next several years is quite favorable.

Moreover, ever since the company pivoted to a cloud subscription model back in 2013, Adobe has morphed into a big revenue growth and big margin expansion company with a whole bunch of recurring revenue. That means big profits and lots of stability, the combination of which is usually awarded with a premium valuation.

All together, Adobe is a very valuable growth company without much competition and with tons of long-term growth visibility. The stock got ahead of itself near $260, but now that it has pulled back in a meaningful way to $240, it looks like a good time to buy the dip in this secular growth name.

Big-Time Cloud Stocks To Buy 3: Salesforce.com, Inc. (CRM)

Source: Shutterstock

When it comes to big-time cloud stocks, there aren’t many that have been as impressive as salesforce.com (NASDAQ:CRM).

Salesforce is truly at the heart of the cloud and data revolutions. We’ve already talked about the cloud revolution. Every company is going digital and pivoting towards the cloud.

But the other big-growth piece of CRM is the data revolution. The volume of data globally is exploding higher right now, thanks to the mainstream emergence of the Internet of Things (IoT) and a movement among large companies towards big data accumulation and analysis. CRM leverages all that data and analytics to deliver robust cloud solutions to enterprises that want data-driven insights on their customers.

Consequently, as the cloud and data revolutions have played out over the past several years, CRM stock has soared. It is up more than 250% over the past 5 years.

Granted, there are a lot of competitors in this space. But just like Adobe, none of these competitors come close to rivaling CRM. That is why, despite rising competitive threats and tougher laps, revenue growth at Salesforce has hardly slowed over the past several years. Back in 2014, revenues grew by 33%. In fiscal 2018, revenues grew by 25%. Last quarter, they rose by 25%. And this year, revenues are expected to rise by 25%.

In other words, much like Amazon and Adobe, CRM has been able to maintain robust revenue growth despite a supposedly more competitive operating environment. That speaks volumes about the quality of CRM’s offerings, and also lends itself to healthy multi-year growth visibility for the company.

CRM stock looks expensive here and now, so buyer beware on the valuation front. A riskier macro-economic backdrop could weigh on shares in the near to medium term. But longer-term, this company’s broad exposure to the cloud and data revolutions will power the stock materially higher.

As of this writing, Luke Lango was long AMZN, GOOG, and ADBE. 


Article printed from InvestorPlace Media, https://investorplace.com/2018/07/3-big-time-cloud-stocks-with-monster-growth-potential/.

©2024 InvestorPlace Media, LLC