To say that cloud computing stocks are hot is an understatement. The global cloud computing market is forecast to grow at a compound annual growth rate (CAGR) of 17.5% over the next five years and reach $832.1 billion by 2025.
That’s massive growth, and it’s being driven by the skyrocketing use of data all around the world. Data use that has only increased during the novel coronavirus pandemic. Companies that are focused on cloud computing are seeing their stocks hit all-time highs this year.
Let’s have a look at four of the best-performing cloud computing stocks in 2020 — stocks that are likely to outperform in 2021 and beyond.
- Salesforce.com (NYSE:CRM)
- Alibaba Group (NYSE:BABA)
- CrowdStrike Holdings (NASDAQ:CRWD)
- Palo Alto Networks (NYSE:PANW)
Cloud Computing Stocks To Buy: Salesforce (CRM)
Salesforce owns the world’s largest cloud-based customer relationship management (CRM) software platform. The San Francisco-based company controlled 18.4% of the global CRM market at the end of 2019, according to IDC, while its top rival, SAP (NYSE:SAP), held a 5.3% global share.
Salesforce also provides cloud-based e-commerce, marketing and analytics services. Demand for all these services is rising as companies streamline operations and reduce their reliance on human workers.
Salesforce also integrates its artificial intelligence service, known as “Einstein,” into most of its cloud computing services. Einstein crunches all the data from Salesforce’s services and makes predictions about a company’s customer base.
The company’s revenue rose 30% year-over-year to $10 billion in the first half of fiscal 2021, and its adjusted earnings surged 35%. For the full year, Salesforce expects its revenue to rise 21% to 22%, and for its adjusted earnings per share to grow 24% to 25%. Next year, analysts expect Salesforce’s revenue to rise a further 18%.
Salesforce also integrates its artificial intelligence service known as “Einstein” into most of its cloud computing services. Einstein crunches all the data from Salesforce’s services and makes predictions about a company’s customer base.
CRM stock has been on fire this year, more than doubling from its March low of $124.30 a share to just under $260 today. Analysts remain bullish on Salesforce. The median forecast of 37 analysts who cover the company is for the stock to reach $275 a share in the coming months.
Relations between the U.S. and China could improve under a Joe Biden presidency and that would be good news for Chinese cloud computing giant Alibaba. BABA stock has been hammered in recent weeks following news that the $34 billion initial public offering (IPO) of fintech company and Alibaba affiliate Ant Group is being indefinitely delayed. The share price of Alibaba stock fell 10% on news that Chinese regulators had pulled the plug on the Ant Group initial public offering.
However, news that Joe Biden is the president-elect should bode well for Alibaba and its shareholders. BABA stock has been rocked over the past year by tense relations between officials in Beijing and the Trump administration.
Alibaba stock has been volatile since September as technology companies were beaten down and the battle over TikTok raged in the media. Apart from politics, there are growing concerns that Alibaba is going to be slowly broken apart and sold off in pieces, with Ant Group being the first big chunk to spin-off.
Regardless of what ultimately happens with the Ant Group IPO, analysts see huge potential in BABA stock. Among 53 analysts offering 12-month price forecasts for Alibaba, the median price target is $2,324.00 a share, representing an eight-fold increase from the stock’s current price of $290 a share.
California-based CrowdStrike provides the security that is needed to protect data and information stored in the cloud. And the security of cloud computing is of paramount importance. The more confident people are in the security of their data, the more they will use cloud computing applications.
As a result, CrowdStrike has performed remarkably well this year. The company’s revenues have grown from $52.7 million in 2017 to $654.3 million in 2020. A big part of its sales growth has come from its cloud-based, endpoint protection solution. This solution requires users to install software to receive cybersecurity protection for all of their cloud computing data.
CrowdStrike has also been growing its business through acquisitions. The firm recently acquired Preempt Security for $96 million in cash and stock, which will further enhance its platform with identity security capabilities. The strong revenue growth and acquisitions have helped CRWD stock more than triple (up 316%) from its March low.
The company’s shares now trade at around $127 a share. Analysts see further growth ahead with a median price target on the stock of $160 per share.
Palo Alto Networks (PANW)
Like Crowdstrike, Palo Alto Networks is a cybersecurity company that is focused on securing cloud computing data. And while the company has been around since 2005, it has been enjoying a resurgence this year.
In its final quarter of fiscal 2020, Palo Alto Networks reported some of its strongest results ever. Stating that Covid-19 and the growing movement to cloud computing has accelerated its business, the company reported revenue growth of 32% year-over-year. For 2021, the company forecasts 17% annual growth.
Palo Alto has also been growing through acquisitions, announcing this past summer that it is spending $265 million to acquire The Crypsis Group, which provides digital forensics consulting, risk management and incident response services. Those are all new offerings that Palo Alto can use to further grow its customer base.
The good news for investors is that PANW stock remains undervalued and a bit of a hidden gem. The share price is up 89% from its March doldrums at $252 a share, but remains below its 52-week high of $275.03. The median price target of 33 analysts who cover the company is for Palo Alto Networks share price to reach $300 in the coming 12 months, a potential 20% increase from its current level.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.