7 Best Cloud Computing Stocks To Buy

Best Cloud Computing Stocks To Buy: Cloud computing isn’t exactly a new technology. It has been around for more than 20 years. However, until relatively recently, many businesses relied on on-site data centers to power their IT infrastructure.

The problem with such data centers is that they are expensive, unreliable, and complicated. They require space, specialized IT staff, and on-going expansion to keep up with the speed of business. 

As the world moved towards digital technologies to manage everything from customer care to communications, many business leaders decided to start the transition to cloud computing. To date, 69 percent of companies are using the cloud for some or all of their IT infrastructure, and an additional 18 percent have plans to move forward with changes in the near future. 

Those that have increased their reliance on cloud computing over traditional data centers report substantial benefits. Revenues grow 53 percent faster than competitors using traditional technology, security breaches are down by a wide margin, and employees are better able to take advantage of mobile devices to connect with critical company systems at any time, from anywhere.

That last point has been crucial in business continuity as the COVID-19 pandemic required more people to work from home. 

Cloud computing stocks have seen impressive growth as the move to this type of infrastructure reached a tipping point. However, there is still more growth to come. Many companies still need to make the switch, and those that have started the process still have a ways to go before on-site hardware is completely eliminated. 

There are many choices for investors who want to get in on the cloud computing action. According to industry analysts, these seven are the best cloud computing stocks to buy today. 

Bandwidth Is Challenging Twilio

Some of the top cloud computing stocks are trading at a heavy premium – fortunately, you don’t have to overpay to add this industry to your portfolio.

Bandwidth, a company focused on Communications Platform as a Service, offers clients the opportunity to add voice and messaging services to their own websites and mobile apps. 

Bandwidth’s service is similar to that of Twilio (TWLO), and it is growing its revenues at a similar rate. However, for the moment, shares remain reasonably priced – especially as compared to Twilio.

During the first nine months of 2020, Bandwidth increased revenue by 35 percent year-over-year – and that growth is speeding up. For the third quarter of 2020, revenues went up by 40 percent year-over-year to a total of $84.8 million.

Smart investors are buying now, in hopes of seeing substantial returns as Bandwidth increases its market share.

Amazon AWS Growth Is Stunning, Still

It’s no secret that 2020 was a banner year for Amazon (AMZN). It was uniquely positioned to provide the essential services needed to weather the pandemic. Overall revenues increased 44 percent in 2020 to a total of $125.6 billion. That exceeded analysts’ expectations by a full $6 billion. 

These results were due, in part, to the sudden popularity of online shopping. E-commerce went from 11.8 percent of all retail sales before March 2020 to 16.1 percent during quarantines, lockdowns, and stay-at-home orders.

Amazon is projecting additional revenue growth of 36.5 percent for the first quarter of 2021. That figure is helped along by the fact that more small businesses are now working with Amazon to connect with customers that remain uncomfortable visiting brick-and-mortar stores. 

Meanwhile, Amazon Web Services – the cloud computing arm of the company – saw sales increase by a full 30 percent.

Amazon Web Services contributed more than 50 percent of the companies operating profits for 2020, and it appears that 2021 will be more of the same. In its most recent earnings call, Amazon announced that it won more than $50 billion worth of contracts for the coming year. 

While Amazon stock is certainly on the expensive side, most analysts consider it a smart buy. There is every reason to believe it will continue to go up in value, both in the short-term and the long-term.

Alphabet Has More Than Cloud To Woo Investors

Alphabet, parent to leading companies like Google, has gotten into the cloud computing space in a big way.

Its Google Cloud Platform holds the number three spot for global public cloud service providers. Cloud computing has been Alphabet’s fastest-growing segment, in no small part because of its partnerships with large organizations like Globant and Deloitte.

For the moment, Google Cloud Platform isn’t the biggest contributor to Alphabet’s revenues, but analysts are keeping a close eye on its growth. Many believe that in coming years, this service will deliver a significant share of the company’s overall sales, driving profits higher along the way. 

Cloud computing isn’t the only thing Alphabet (GOOG) has going for it. Google remains the market leader in search engines, with 90 percent of market share.

On top of that, Waymo, Alphabet’s self-driving car, might be the first to get autonomous “robotaxis” on the road in multiple markets.

In other words, Alphabet is a smart buy for more than just its cloud computing business. The company as a whole is on the cutting edge of in-demand technologies. 

Microsoft (Azure) Contributes 30% To Revenues

Given its history, it’s no surprise that Microsoft is a leading provider of cloud computing services. The Microsoft Azure platform, in combination with Office 365 software and the Dynamics customer relationship management service grew an impressive grew revenue by 36 percent for fiscal 2020.

That’s a total of $50 billion, which represents more than 30 percent of Microsoft’s total revenue. 

Cloud computing is just the tip of the iceberg when it comes to Microsoft’s revenues. As with the other big players in cloud computing, Microsoft has a long list of popular products and services that contribute to overall sales. 

For example, it is parent to the professional social media platform LinkedIn, and rumor has it that Microsoft wants to do more in this highly profitable area. There was talk of Microsoft purchasing TikTok, and it has expressed interest in buying Pinterest, which is in a period of rapid growth. 

Even more exciting, Microsoft is expanding its investment in gaming with the recent release of two new versions of the Xbox. The systems are compatible with Microsoft’s Xbox Game Pass subscription service that gives users unlimited access to some of the world’s most popular games.

Some investors have expressed concern that Microsoft (MSFT) is too costly, and that the rapid growth of 2020 won’t be repeated in 2021. However, analysts suggest that there is still plenty of opportunity for the company to gain market share in cloud computing and gaming – and that will drive revenues, profits, and eventually share prices up. 

Fastly Growth Rate Is Eye-Popping

The edge computing firm Fastly has seen dramatic growth over the past 12 months – more than 430 percent going into February 2021 – and when analysts looked at Fastly’s network traffic and general interest in its edge computing services, they predicted that growth will continue for the next 12 months. 

That’s because Fastly (FSLY) complements cloud computing by bringing data and computation closer to the end user. Users notice improved response time and reduced bandwidth use, while retaining the benefits of cloud-based services.  

Fastly is trading at a lofty premium these days, given analysts’ price projections for the coming year. However, there could be one area of concern that pushes share prices down in the short-term.

Fastly’s biggest customer is the social media app TikTok, which has been in the White House’s crosshairs. The previous administration suggested banning it altogether, and the current administration hasn’t ruled out that possibility. 

Some investors are hoping to buy Fastly shares slightly lower as the TikTok drama plays out. Others are buying Fastly now under the theory that today’s prices are as low as they will ever be. 

Can DataDog Continue To Grow Rapidly?

It’s common for companies to use a variety of platforms to manage massive amounts of data. While there are important benefits to that strategy, there is also a big downside. Someone has to monitor all of that data across multiple platforms. That takes a lot of time, and it tends to be labor-intensive.

DataDog solves that problem by bringing the data together. It creates dashboards that can monitor activity across platforms, offering users a comprehensive view. 

The company saw exceptional growth in 2020, driving share prices up over the course of the year. Among other key figures, DataDog reported total revenue growth of 66 percent, which comes out to $603.5 million. That was far better than analysts had projected, so one would assume DataDog stock went up, right? 

Alas, it didn’t. In fact, DataDog (DDOG) shares dropped shortly after 2020 results were released. It seems investors are not convinced that they can repeat 2020’s gains in 2021.

Overall, DataDog is a company with a lot of promise, and it is a smart choice for a diversified portfolio. However, there is debate on whether to buy now or to gamble that prices will go a bit lower. 

CrowdStrike = Cloud Security

All of this talk about cloud computing raises an important question. How safe is data when it is stored in the cloud?

CrowdStrike (CRWD) is a cybersecurity company that is fully focused on that very issue. The company offers cloud-based solutions for cloud-based security problems, protecting data from breaches and loss with advanced cybersecurity tools. 

CrowdStrike was another cloud-related company that saw gains in 2020. Over the first three quarters of the year, it grew revenues by 85 percent.

Better yet, it generated $31 million in non-GAAP revenue – a nice change from the $58.7 million loss during the same period in 2019.

It’s fair to say that CrowdStrike shares are pretty expensive at this point, but given its area of expertise and the demand for its services, many say the premium is worth paying. 

Best Cloud Computing Stocks To Buy: The Bottom Line

All investments carry risk, and that includes cloud-computing stocks. Basing trading decisions on 2020 alone may not offer a realistic look at these companies’ futures.

Cloud computing and related services saw huge growth because of the pandemic. That growth is likely to slow as vaccines roll out and life returns to “normal”.

With that said, there is no question that the future includes greater reliance on cloud computing. That makes these stocks smart choices for long-term gains. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.