7 Cloud Stocks to Buy Now

cloud stocks
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Cloud stocks are back. During the late 2018 market selloff, cloud stocks were thrown out — along with every other growth stock in the market. But as financial markets have improved in early 2019 due to stabilizing economic fundamentals, cloud stocks have come roaring back.

The First Trust Cloud Computing ETF (NASDAQ:SKYY) dropped more than 20% in late 2018. Since bottoming on Christmas Eve, the SKYY ETF has soared nearly 20%, and is now just 5% off of all-time highs.

The big rebound in cloud stocks can be chalked up to improving fundamentals and sentiment. As it turns out, the global economy isn’t spiraling downward at a rapid rate. Instead, it is simply slowing at a reasonable rate to a more steady 2-3% growth rate. Amid this slowdown, cloud services demand has remained robust, since cloud services are seen both as the future and a way to cut costs amid slowing growth.

Consequently, the fundamentals and sentiment underlying cloud stocks have dramatically improved over the past month. As they have, cloud stocks have soared higher.

This rally is far from over. Considering only 20% of enterprise workloads have shifted to the cloud, it’s fair to say that the rally in cloud stocks is still in its early stages. With that in mind, let’s take a look a 7 cloud stocks to buy now.

ADBE stock

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Adobe (ADBE)

Perhaps the best-in-class cloud stock to buy now for healthy upside and limited risk is Adobe(NASDAQ:ADBE).

The core growth narrative here is quite promising. Adobe is one part stable-growth business with a huge moat, and one part hyper-growth business with a rapidly expanding addressable market. Those two parts put together are worth far more than what the market is saying today.

On the stable growth side, Adobe is a one-stop shop digital solution for creative professionals with relatively muted competition. This has always been the case. If you can’t think of any true competitors to Adobe in the creative solutions space, you aren’t alone. Just check out this list or this list of Adobe Photoshop alternatives. None of them are household names. Nor do any of them offer products even close in quality to Adobe’s offerings. As such, this creative solutions business is a stable growth business with a huge moat and no competition, implying healthy revenue and profit growth for the foreseeable future.

On the hyper growth side, Adobe is morphing into a cloud business with a unique value prop. Other cloud solutions focus on various factors. Adobe’s cloud solutions focuses on experiences and visuals, and the company is leveraging its experience in visual-oriented solutions to create cloud solutions for companies looking to enhance their consumer’s experience. As it does, Adobe’s revenue and profits will move considerably higher.

Overall, there’s a lot to like about ADBE stock. This is a big growth company that will keep growing at a big rate for a lot longer. That level of robust growth will power ADBE stock significantly higher in a long term window.

Twilio Stock Is Ready to Top Out, but Keep Your Eyes Peeled for a Big Dip

Source: Web Summit Via Flickr

Twilio (TWLO)

Another best-in-class cloud stock is cloud communications app maker Twilio (NYSE:TWLO)

Over the past several quarters, Twilio has emerged as the unchallenged leader in the rapidly growing Communication Platforms-as-a-Service (CPaaS) market. The CPaaS market essentially consists of companies integrating real-time communication into their services. Think of Uber or Lyft using messages to communicate with riders when their rides are approaching.

This market will be huge due to continuous shifts towards cloud-based communication, personalized customer experience and digital engagement. Quite simply, as consumers, we enjoy digital, real-time, and personalized communication about the services and products we are paying for. Twilio enables this communication. That positions this company for huge growth as the CPaaS market expands over the next several years. For what it’s worth, research firm IDC expects this market to grow five fold over the next five years.

Thanks to its huge customer and revenue growth and 95%-plus retention rate, Twilio has emerged as the clear leader in this space. As this space matures over the next several years, companies will increasingly turn towards Twilio to enable CPaaS solutions thanks to the company’s leadership position (in new industries, you always tend to trust the leader).

As such, over the next several years, Twilio will continue to grow at a rather robust rate. This big growth will ultimately power TWLO stock higher, especially against a favorable equity backdrop.

ServiceNow (NOW)

In the digitization and automation fields, the cloud stock to buy is ServiceNow (NYSE:NOW).

ServiceNow is currently in the business of digitizing corporate operations. This includes automating corporate workflows and IT tasks. But, this is just the tip of the iceberg for ServiceNow. Automation is a big, big market. Automating IT tasks represents just a fraction of what the automation market will look like at scale.

At scale, jobs across the entire corporate ecosystem will be replaced by more efficient digitized and automated solutions. ServiceNow will provide the lion’s share of these solutions. As such, as the automation revolution plays out over the next several years, ServiceNow’s revenues and profits will explode higher. As they do, NOW stock will explode higher, too, considering the valuation today remains reasonable.

Overall, NOW stock is a great way to play the automation revolution. This revolution is still in the first inning, and the next eight innings promise to have broad and immense financial implications. For ServiceNow, those implications are hugely positive. As such, NOW stock should trend consistently higher over the next several years.

Lesser-Known Tech Stocks to Buy: Okta (OKTA)

Okta (OKTA)

One of the more exciting cloud stocks to consider here is Okta (NASDAQ:OKTA).

Okta is pioneering what the company calls the identity cloud. Essentially, this is a cloud solution centered on individual identity that allows millions of people across a corporate ecosystem to seamlessly, securely, and uniformly connect to the technological tools that the corporation is adopting. This may sound like a complex idea. The underlying technology is complex. But, the idea isn’t. The idea is that companies everywhere are rapidly adopting new technologies, and that the implementation of these technologies is often difficult, chunky, and risky to identities and data. Okta solves this problem, and allows companies to adopt new technologies seamlessly and within the same secure cloud solution.

This is a big idea. Big ideas have big markets. Indeed, the addressable market for Okta’s identity cloud is the whole IT space. Okta recorded revenues of just over $100 million last quarter from growth of nearly 60%. This is nothing new. Over the past several quarters, the average revenue growth rate has hovered around 60% and the average customer growth rate has hovered around 40%.

Thus, this is a small company that is consistently and rapidly growing in a huge market. Gross margins are high, and marching higher, leaving room for big profits at scale. Overall, this is a big growth company with a ton of potential. The valuation is big, but the amount of growth firepower underneath this business implies a tremendous opportunity to grow into the valuation, and then some, making OKTA stock an attractive long term investment here.

salesforce stock crm stock

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Salesforce (CRM)

The king of all cloud stocks is Salesforce (NYSE:CRM), and there’s good reason for that.

Salesforce is at the heart of the cloud and data revolutions. The company leverages data and analytics to deliver robust cloud solutions to enterprises that want data-driven insights. Demand for this type of service will grow by leaps and bounds over the next several years as data-driven strategies and cloud solutions become the enterprise norm. Salesforce has developed a long-standing reputation for being the best in class for delivering these services.

That won’t change any time soon. As such, Salesforce’s revenues and profits will soar higher over the next several years as the cloud and data revolutions gain mainstream traction.

This will naturally push CRM stock higher. Valuation is somewhat of a concern at nearly 60x forward earnings. But, the company has enough growth firepower through cloud and data tailwinds to grow into its valuation. Plus, valuation has been a long-running concern for this stock, and the stock has done nothing but defy those concerns and head higher over the past several years.

The same will be true over the next several years, too. Cloud and data tailwinds will propel CRM stock higher, and this stock will ultimately grow into its valuation. Indeed, numbers indicate the stock could double in the long run.

Amazon stock

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Amazon (AMZN)

Amazon (NASDAQ:AMZN) is better known for its giant e-commerce business. But, the true profit growth driver behind Amazon is the company’s cloud business — Amazon Web Services.

AWS is the world’s largest cloud infrastructure services business, and it’s not even close. Amazon Web Services is bigger than its four closest competitors … combined. And the company has consistently controlled more than 30% of the cloud services market.

This dominance speaks volumes about just how good AWS is. Indeed, AWS is so good that even Amazon’s commerce competitors are giving money to the company through AWS. Notably, Amazon’s e-commerce competitor Zulily migrated its infrastructure to AWS recently. Also, AWS is so good that Amazon it is the clear front-runner to win a $10 billion Joint Enterprise Defense Infrastructure (JEDI) commercial cloud contract with the U.S. government. If Amazon were to win that contract, that would be the second government contract this decade (AWS won a $600 million CIA contract in 2013).

Overall, AWS is the clear leader in the cloud infrastructure services. As this market grows over the next several years, AWS will grow, too, and that will provide a big boost to Amazon’s profits. A big boost to Amazon’s profits will give AMZN stock firepower to head higher.

Google Stock GOOGL Stock GOOG stock

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Alphabet (GOOGL)

Much like Amazon, Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) is better known for its non-cloud businesses.

But, a significantly underappreciated and underrated aspect of Alphabet is Google Cloud. Google Cloud is a big growth, big margin business for Alphabet. To be sure, the business has lost some steam over the past several quarters as Microsoft (NASDAQ:MSFT) has gained cloud market share at a more robust pace than Alphabet recently. But, there have been some C-suite changes at Google Cloud which could give the business new direction and new firepower to regain some lost momentum.

Regardless, Google Cloud will remain a 20%-plus growth business for a lot longer. Overall, Google Cloud is the key to unlocking the next leg of value in GOOGL stock. Fortunately, this business is progressing as expected, and will continue to do so over the next several years. As it does, GOOG stock will move higher.

As of this writing, Luke Lango was long ADBE, TWLO, CRM, AMZN and GOOG. 

Google and Facebook Up Their Blockchain Game

Do you remember the “browser wars” in the 1990s? It started when young upstart Netscape took the world by storm with its web browser.

At the time, Microsoft – with its Windows operating system – dominated the computing industry. It was a behemoth feared by all. Apple, IBM and HP were mere flecks in Microsoft’s rearview mirror.

Yet Microsoft knew that the web (and Netscape) represented an existential threat. It could be the only thing to drive Microsoft out of business.

So Microsoft pivoted. It embraced the internet and the web. And it created Internet Explorer. It was Microsoft’s bid to own access to the web.

Microsoft bundled Internet Explorer for free with its Windows operating system in an effort to crush Netscape and any other company that might have the temerity to launch its own browser.

The company’s efforts didn’t work. But they did define the competitive landscape for the better part of a decade.

Just like Microsoft more than 20 years ago, Facebook and Google have been hard at work trying to determine how they want to approach crypto – and the blockchain.

And this week, we learned more about their efforts.

Last May, David Marcus left Facebook’s Messenger product to lead Facebook’s blockchain initiatives. In December, media reports suggested Facebook was developing a cryptocurrency to be used on its WhatsApp messaging platform. And this week, Facebook hired away Chainspace’s top talent (Mashable).

The move, first reported by Cheddar, gives Facebook a talented crypto team that had been working on building smart contracts and a payment ecosystem (Cheddar).

Facebook didn’t get Chainspace’s technology. But Facebook doesn’t need the tech. It now has the talent and resources to build its own crypto ecosystem. And Facebook’s existing user base (2.32 billion monthly active users) could drive mainstream adoption. That makes Facebook a crypto force to be reckoned with.

Google, meanwhile, is entering crypto in typical Google fashion – by making it searchable. Google has uploaded the entire bitcoin and ethereum blockchains to its BigQuery cloud database and provided open-source tools to search it. It’s in the process of uploading litecoin, zcash, dash, bitcoin cash, ethereum classic and dogecoin to BigQuery. And independent programmers are uploading their own crypto datasets to BigQuery so they can search them (Forbes).

This is a remarkable development. One of the biggest regulatory issues facing crypto is market surveillance. But with the right programming or AI (artificial intelligence) in place, that problem can be solved. In fact, a Google developer has already spotted bitcoin cash being hoarded and autonomous agents moving ethereum around.

An independent developer used Google’s tools to find a specific smart contract flaw. Another created a heat map of XRP flow.

Google’s new foray into crypto has the potential to be transformational. And the entire crypto community should be on notice. Google and Facebook are playing for keeps. Everyone else needs to raise their game.

Now to the News Fix!

Cannabis

It’s earning reports season. Here’s the lineup:

Speaking of MedMen, it’s been an interesting few months for James Parker. In the beginning of November, he was MedMen’s chief financial officer. In mid-November, MedMen announced his resignation. And by the end of January, Parker was suing MedMen for breaching its fiduciary responsibility to shareholders (Seeking Alpha).

A Florida judge has struck down a law that limits the number of medical marijuana facilities an operator can have (Orlando Sentinel).

And in Arizona, medical marijuana is legal – except when a county prosecutor says it isn’t (ABC15).

Okay, let’s follow the bouncing ball here. Arizona voters legalized medical marijuana in 2010. In 2017, a cancer patient was told by his oncologist that he should try medical marijuana. He obtained a medical marijuana card from the state and visited a legal medical marijuana dispensary where he bought some wax to help with his nausea.

A few days later, he was stopped by police for a traffic violation. And when they discovered the wax in his car, they arrested him and charged him with possession of a narcotic. He faces a 10-year prison term if convicted.

Whether this Arizona man gets convicted depends on the Arizona Supreme Court. The court is hearing a similar case about an Arizona man currently serving time for the same “crime.”

The legal “argument” at play is that the medical marijuana law says only the plant form of marijuana can be used for medical purposes. All other forms are illegal.

It’s a technicality – one that ignores the fact that he purchased the wax legally. And even the state’s attorney general doesn’t want anything to do with this case.

But the conviction has already been upheld once. Here’s hoping the Arizona Supreme Court does the right thing and frees these men from this legal nightmare.

Startups

Spotify is betting big on podcasts. It just bought podcast startups Gimlet and Anchor to fortify its strategy. The two startups had raised about $43 million combined from venture capital funds (Fortune). Spotify spent about $230 million on Gimlet and wants to spend about $500 million this year on acquisitions (Recode).

And Jetty, a startup that sells rental insurance, just raised $25 million in a Series B funding round. The round was led by Keith Rabois from Khosla Ventures (The Real Deal).

Crypto

Twitter CEO Jack Dorsey recently revealed that the only cryptocurrency he owns is bitcoin. Why bitcoin?

“Bitcoin is resilient,” Dorsey said on Twitter. “Bitcoin is principled. Bitcoin is native to internet ideals. And it’s a great brand” (Daily Hodl).

And in Argentina, 37 cities now accept bitcoin as payment for buying bus and metro (train/subway) passes (Bitcoinist).

And that’s your News Fix.

Have a great weekend!

Vin Narayanan
Senior Managing Editor, Early Investing

Source: Early Investing