Roughly 10 years ago, cloud computing was the hot trend and term of the investment community much like AI stocks today. Only it wasn’t a flash in the pan. Cloud technology has paved the way for giant gains over the last decade. For good reason, it still has investors looking for the top cloud computing stocks to buy today.
Here’s an example: the difference between Amazon (NASDAQ:AMZN) and many other e-commerce platforms is that the company has a robust cloud business to take into account. Amazon Web Services generates an enormous amount of revenue and profit for the company.
And while it’s an undeniable e-commerce titan, its cloud unit allowed it more flexibility in other areas of its overall business and led to enormous gains in its share price. The same could be said for countless other tech giants as well.
The market is going through a bit of turbulence — down five out of six days so far in August — but that shouldn’t stop investors from looking at the leading cloud stocks.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) has become stock market royalty, boasting the second-largest market capitalization in the world with a $2.41 trillion valuation. Lagging only Apple (NASDAQ:AAPL) in market cap, Microsoft has built upon its legacy within the tech space.
However, it hasn’t always been an easy ride for the stock or its long-time investors.
While Microsoft saw an enormous run-up during the dot-com bust — thanks in part to its dominant software — the stock actually topped out in 1999 and didn’t surpass that high again until 2016! Even the stock’s 2001 peak held firm for more than a dozen years before being eclipsed in late-2013.
When Microsoft finally got out of its funk, it needed a catalyst and that catalyst was the cloud. While the company flexes its balance sheet muscles and many excellent revenue streams, its cloud growth has been atop the list when it comes to investors’ focus.
Now that it’s down more than 10% from its 2023 high, investors are wondering if this name will become a buy-the-dip candidate. The easy answer is “yes,” but the harder question is “when?”
Snowflake (SNOW)
Snowflake (NYSE:SNOW) is a peculiar case given that the stock has been incredibly volatile lately. Notably, it’s has been struggling with the $190 area and has now pulled back roughly 20% from this zone.
Back in late-May, the firm reported earnings and, despite beating on earnings and revenue expectations, investors were unimpressed with the guidance. As a result, SNOW stock suffered a one-day 16.5% decline. However, the stock quickly proved its doubters wrong, rallying almost 30% after stringing together a seven-day win streak.
So which is it — a disappointment or a growth darling?
There’s no question that Snowflake has the growth to back up its reputation. Analysts expect annual revenue growth in excess of 30% in each of the next four years. That’s alongside a pivot to profitability.
While the stock commands a high valuation, it is still much lower than it was a few years ago. Even if the stock market has another couple of shakeouts left — potentially putting the $120s back in play — Snowflake seems like an excellent long-term winner.
DigitalOcean (DOCN)
DigitalOcean (NYSE:DOCN) feels a bit more like a wild card at the moment. While the stock had been performing quite well recently — up almost 40% from its late-June low to its mid-July high — the stock’s post-earnings performance has been a drag.
Shares suffered a one-day 24.8% decline on Friday Aug. 4 after the firm reported its quarterly results. The problem? Revenue guidance missed consensus expectations for next quarter and the full year.
On the plus side, management remains focused on turning to profitability and expanding its margins, which continues to come to fruition.
That said, DigitalOcean is a high-growth stock and thus remains in a volatile state. The market has been punishing these names when the earnings disappoint and that’s the simple case with DOCN stock right now. That said, it has a lot of long-term potential if it can continue to churn out double-digit revenue growth and improve its bottom line.
On the date of publication, Bret Kenwell held a long position in DOCN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
