Believe it or not, quite a few cloud stocks out there don’t cost a small fortune to punch your ticket to. Several enterprise and consumer cloud companies haven’t yet felt the generative artificial intelligence (gen AI) tailwind all too strongly, especially versus the likes of your average semiconductor heavyweight. And it’s unclear if they will anytime soon, with infrastructure software spending markedly softer than hardware spend.
As top hardware companies become fully priced, investors looking for “deals” in the gen AI universe may wish to check in with some fairly-priced cloud before the herd catches on.
Undoubtedly, we could see IT investing turn from hardware to software once firms have had their fill of chips. Indeed, stockpiling GPUs, memory, servers, and other related hardware represents only one piece of the AI puzzle for firms.
Though the timing of AI-induced earnings surges seems somewhat less certain for many cloud stocks, they could have the potential to be sudden and sizable in magnitude. Here are three names that look intriguing this July.
Adobe (ADBE)
Adobe (NASDAQ:ADBE) is a cloud darling that’s fully invested in gen AI. Though there are formidable and fast-moving rivals in the AI image and video generation market, Adobe has excellent managers who can lead it into the AI age. Indeed, Adobe’s move into the cloud has paid off big time. And so, too, should its deep dive into the AI waters.
With AI integration, Adobe stands to enable the masses to be pro-level creators. Indeed, only so many people know how to use Photoshop well. However, with gen AI taking care of the tedious details while allowing users to fine-tune their creations, the firm stands to expand upon its total addressable market significantly.
In essence, anyone who can type into a prompt can have the capability of a designer when equipped with AI, which will become even more intelligent as time goes on.
Given how Adobe is leveraging AI software, I view ADBE stock as a cheap cloud stock while going for 30.8 times forward price-to-earnings (P/E). Shares are up around 29% from their early-June lows and could be headed much higher if it executes its AI plans.
Atlassian (TEAM)
Atlassian (NASDAQ:TEAM) is another cloud-based AI software firm that can profoundly boost user productivity. The Australian company behind industry-leading project management software can create much incremental value by rolling out AI across its application suite.
Now down more than 60% from its 2021 all-time high, TEAM stock looks like one of the cheaper cloud stocks for investors seeking AI innovation and growth at a reasonable price. Of course, there are notable headwinds, but I think they mostly distract from the longer-term opportunity in cloud migration and gen AI.
Earlier this month, Piper Sandler analyst Rob Owens upgraded TEAM stock to “overweight” from “neutral” and raised his price target by 12.5% ($200 to $225). He views a “favorable” risk-reward at current valuations. At 55.5 times forward P/E, the stock is no steal. However, if management can hit its new financial goals, the beaten-down cloud stock may be one of the best opportunities in tech.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) made headlines this past week when it announced it’s close to inking a $23 billion deal to buy cybersecurity firm Wiz. In light of the massive breach at AT&T (NYSE:T), investors seem to welcome such a deal.
Undoubtedly, GOOG stock has been on an incredible run in the past year, but the cloud stock’s rally may be in its earlier innings. As the cloud firm beefs up its cybersecurity prowess via the Wiz acquisition and its own innovations, Google’s cloud customers can feel safe knowing their data is in excellent hands.
Additionally, as Google advances its AI strategy in the cloud, Alphabet may just be able to rise in the standings of the public cloud race. Indeed, Microsoft (NASDAQ:MSFT) Azure is leading the charge with its AI prowess. But Google Cloud certainly has the AI chops to pick up the pace. At just 28.4 times forward P/E, GOOG stock reeks of relative value.
On the date of publication, Joey Frenette held a long position in GOOG and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in GOOG.
