SNOW - Head In The Clouds: These Cloud Stocks Are Benefitting From This Year's Top Tech Trends

2023-08-09 04:24:46 ET

Summary

• Cloud computing has witnessed strong rebound on the back of emerging tech trends.
• The ISE CTA Cloud Computing Index is up 35.8% this year.
• In Q1, spending on global cloud infrastructure rose $10 billion from Q1 2022.
• Analysts suggest cloud computing market opportunity could reach $725 billion by 2024.
• Amazon Web Services continues to dominate the market, holding a 32% market share.

While economic troubles and political interference plagued the cloud computing market last year, presenting household names and investors with considerable challenges, leading to the ISE CTA Cloud Computing Index to falling 44.7%, cloud computing stocks are on track to mend its performance this year, as the Artificial Intelligence [AI] boom and tech development trends give stocks a major boost.

By late July 2023, the ISE CTA Index was up 35.8%. While there is enough evidence to support the argument that many companies have benefited from the ongoing AI boom, other tech trends that have unfolded over time - machine learning, edge computing, Internet of Things [IOT] - could perhaps also be responsible for the market’s strong rebound.

Even as big-tech companies, and perhaps the entirety of Silicon Valley announced cost-cutting measures and layoffs in an attempt to stabilize their bottom line, global cloud infrastructure service spending experienced considerable growth during Q1 2023.

During the first three months of the year, spending was up by more than $10 billion compared to Q1 2022, bringing total quarterly spending up to more than $63.7 billion. Analysts predict that the market is now a $237 billion opportunity.

Even at this rate, Gartner research analysts project that spending on global cloud computing, including products and services such as data center infrastructure, proxies for collecting market data , and IT software infrastructure, will increase from $250 billion in 2020 to roughly $725 billion by 2024.

The rebound of the market has become fiercely contested, and as more investors throw their weight behind emerging tech developments, cloud computing could benefit against the backdrop of a broader expansion of the information technology industry.

Head Among The Clouds

Commercial demand for cloud computing services and products has seen big tech household names such as Amazon (NASDAQ: AMZN ); Alphabet (NASDAQ: GOOGL ) and Microsoft (NASDAQ: MSFT ), among others, goes head-to-head in an attempt to dominate the market.

Despite the fiercely competitive marketplace, Amazon continues to dominate the global marketplace , with a 32% market share, falling from 34% in Q3 2022 to 33% in Q4 2022. At the same time, however, Microsoft experienced an uptick, gaining two points, and now dominating 23% of the global market.

While these companies are focused on their race to the top, those running in the shadows have refocused their development efforts in an attempt to capture commercial applications of cloud computing services and products on the back of emerging technology trends.

Salesforce

As a global leader in tech and cloud computing services for businesses of all sizes, Salesforce (NYSE: CRM ) reported significant improvement in its bottom line performance following its Q1 2024 earnings report.

For the fiscal quarter, Salesforce booked $8.25 billion in revenue, translating into an 11% year-over-year (YoY) increase.

While the company experienced a 5% GAAP Operating Margin, and a Non-GAAP Operating Margin of 27.6% during this recorded period, it was one of the tech names that announced it would cut its employee count by 10% back in January 2023. Following the announcement of its restructuring efforts, stocks jumped by 4.69% in single-day trading.

Streamlining its operations, having more diversified offerings and the acquisition of Slack helped the company significantly improve its organic growth, and further compete against leading names such as Microsoft, moreover, Microsoft's collaboration platform, Teams.

The company remains significantly profitable, further investing in the expansion of its operations, and service offerings, including product availability for Slack. On the stock market, share prices of CRM have surged 67% YTD, and in June 2023, global investment bank Goldman Sachs (NYSE: GS ) gave the stock an encouraging upside potential outlook.

Snowflake

Snowflake (NYSE: SNOW ) stocks retreated in late-July trading after Microsoft provided weaker-than-expected commentary on the state of their cloud computing business arm. SNOW was down 4.6%, along with others such as Confluent (NASDAQ: CFLT ) down 4.5% and Datadog (NASDAQ: DDOG ) was off by 3.7% on July 26.

Yet, despite the commentary, Snowflake remains an opportunistic stock pick, with some analysts siding with the growth potential of the stocks in the coming years, as the data company continues to expand its investment in generative AI technology and tools.

Back in June this year, the company announced that it will be partnering with global chipmaker, Nvidia (NASDAQ: NVDA ) to establish more customized generative AI applications. With the use of its proprietary data, Snowflake would further accelerate the path for businesses of all sizes to securely access and store their data with the use of advanced artificial technology.

Jensen Huang, founder, and CEO of NVIDIA, said in a statement that the two companies will build an “AI factory” which will help organizations turn their data into custom generative AI models. This could further spearhead the widespread adoption of AI computing, and potentially power the next generation of digital applications within cloud computing.

DigitalOcean

DigitalOcean (NASDAQ: DOCN ) might be considered one of the new kids on the block, following its IPO back in 2021. The company services small and upcoming businesses, including startups, a business segment that has in the past been overlooked by companies such as Amazon, Google, and Microsoft.

Although the company is still growing, as has spent the last several years finding its feat among its competitors, both big and small, most recent financial reports indicate that the company is rapidly growing, and seeing increasing revenue and free cash flow.,

For Q1 2023 DigitalOcean reported revenue of $165 million, an increase of 30% YoY. What’s more, the company has more than $36 million in Operating Cash Flow and $26 million in Adjusted Free Cash Flow for the same recorded period.

For the full fiscal year, management estimates that the company could see total revenues of $700 to $720 million.

Share prices continue to experience increasing performance, already booking more than 81% improvement to date, however, current prices of $46.00 per share are still far away from their peak of $128.53 per share in November 2021.

To gain a foothold, the company is continuously investing in the development of cloud-based services and technology that can enhance the customer journey and experience. While forward-looking strategies could help investors better understand where the company and share prices may be heading, DigitalOcean could hold more diversified growth potential in the near future.

Adobe

Considered to be one of the leading software companies used by individuals and businesses alike, Adobe (NASDAQ: ADBE ) has made some serious strides in the last few years to increase its foothold in the IT software marketplace, including the cloud technology space.

In 2018, the company acquired both Maketo and Magento, further increasing its presence in the eCommerce market. At the height of the pandemic, Adobe purchased Workfront, which enabled it to bolster its workflow and project management solutions.

Now, as at the uphill of the AI boom, the company has announced its intent to potentially purchase Figma, a fast-growing work and creative collaboration software company.

Adobe has built quite the arsenal of software, helping to establish itself as a key player in the race to the top in terms of artificial and machine learning technology. The company paired with Nvidia to release its Firefly suite apps, which enables individuals to improve their digital photo and video editing abilities through the use of generative AI software.

This year has already seen ADBE climb more than 50% on the stock market, however, analysts are skeptical that this performance could continue based on the company’s takeover of Figma, which could potentially spark an antitrust probe in the European Union.

All-in-all, Adobe is a safe bet for investors that’s looking at a buyout stock pick that could provide them with significant long-term upside and growth potential on the back of emerging technology trends.

The Trade Desk

Connected television and cloud-based video streaming services such as Netflix (NASDAQ: NFLX ) have made digital advertising a booming industry in the last few years, enabling companies such as The Trade Desk (NASDAQ: TTD ) to take increasing advantage of the soaring market opportunity.

The Trade Desk provides automation of digital purchasing, better known as programmatic advertising. Growing digital demand for services in eCommerce and video streaming has made The Trade Desk one of the largest independent digital ad management software companies.

In March, the company released its Q1 2023 results , revealing a 23% increase in YoY revenue performance, penning more than $383 million in revenue during the first three months of the year. Non-GAAP net income rose from $105 million in Q1 2022 to $114 million for Q1 2023, and despite companies cutting their advertising budgets, The Trade Desk had a 95% customer retention rate for the recorded period.

Overall, there’s growing upside potential for the company in the long haul, considering its strong positioning in the marketplace and the upgrading of its Unified ID 2.0 (UID2) support system.

Their current financial outlook estimates that the company will generate $452 million in revenue, with an adjusted EBITDA of $160 million for the year.

Considering TTD, performance has not seen better years, with prices already up by 93% to date and July witnessing impressive gains of just under 10%. Many analysts are keeping their fingers on the pulse, as some have adjusted their position, with the potential that TTD could reach $100 in the coming months if it continues to invest in the upgrading and expanding of its current product portfolio.

Final Thoughts

While we’re seeing significant growth potential for cloud computing companies, those operating in the shadows of industry household names could bring investors a positive upside in the coming years ahead as investment for technology and AI-based tools continue to experience positive growth.

As the marketplace finds itself within a transitional period, where companies are adjusting their balance sheets after a tumultuous year of performance, and looking to invest in emerging technology, perhaps this could become a buoyant cushion for investors’ portfolios.

However, these considerations are not without risks and will continue to be evaluated as the year unfolds. While investors might be supportive of how tech trends have helped cloud-computing stocks rebound from their previous slump, social, ethical, and economic factors could pose potential risks for these companies in the short-term.

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