Cloud computing stocks have had an impressive 2020, thus far. Cloud services stocks have soared as businesses have shifted away from in-house servers to storage on the cloud. The First Trust Cloud Computing ETF (SKYY) is trading up almost 42% year-to-date, compared to the S&P 500 which is up just about 9%.
Many medical experts are anticipating a second wave of COVID-19 to spread across the globe, sending even more businesses to the cloud, which bodes well for cloud stocks as we head into 2021.
Below, we provide a look at four cloud computing stocks to consider adding to your portfolio: Amazon (AMZN), Microsoft (MSFT), Twilio (TWLO) and Datadog (DDOG).
Amazon (AMZN)
Most people think of AMZN just as an e-merchant and the owner of Whole Foods grocery stores. However, AMZN has expanded its reach to cloud computing through its Amazon Web Services business. Often abbreviated to AWS, these services provide affordable, scalable and reliable cloud computing solutions. AWS is particularly appealing as it is free to join, charging customers to the extent that they use the service.
The POWR Ratings show AMZN is ranked 9th out of 58 Internet stocks. AMZN has “A” grades in the Trade Grade and Buy & Hold Grade components. The top analysts insist AMZN is undervalued, setting an average price target of $3,764.
Though few know it, AMZN's AWS is the top cloud infrastructure platform in the world, accounting for nearly one-third of the total market in the second-quarter of this year. AMZN's AWS net sales increased more than 30% on a year-over-year basis. Hop on the AMZN train now, ride it through the fourth-quarter and in 2021.
Microsoft (MSFT)
Though Microsoft is known for its software and video games, this tech stalwart has also made considerable inroads in the cloud space. MSFT’s Azure cloud computing service facilitates the creation, testing, deployment and management of services and applications through its data centers. Furthermore, products such as MSFT’s Office 365 function on the cloud, making it easier to work and collaborate with others while away from the office. MSFT delivers a considerable breadth of platform-as-a-service and infrastructure-as-a-service solutions at scale through the cloud.
The POWR Ratings reveal MSFT has “A” grades in two of the four components (Buy & Hold and Trade grades) along with “B’s” in the Peer Grade and Industry Rank. MSFT is ranked in the top 20 of 96 Software - Application stocks.
The analysts are bullish on MSFT, setting a price target of $233.34, indicating the stock has about 4% potential upside. It is quite interesting to learn MSFT has a forward P/E ratio of just 34.80. This is a fairly low P/E ratio considering MSFT is a tech titan. At the very least, MSFT should re-test its early September high of $231.65 before year’s end as more businesses flock to the cloud.
Twilio (TWLO)
Twilio’s specialty is cloud communications in the form of platforms-as-a-service. TWLO makes it easy for developers to create, scale and operate communications in real time. The components of TWLO’s platform include its Super Network, Programmable Communications Cloud and Engagement Cloud. TWLO’s cloud software empowers developers to add authentication, video, voice and messaging capabilities with ease. Furthermore, TWLO’s cloud-based API empowers developers to make/take calls and text messages in a programmatic manner.
TWLO has “A” grades in POWR Ratings for Trade Grade, Buy & Hold Grade and Peer Grade. TWLO's sole POWR Rating component graded less than an A is its Industry Rank, with a grade of B. TWLO is ranked first of 11 stocks in the Software - SAAS category.
Of the 22 analysts who have studied TWLO, 19 rate it as a Buy, 3 rate it as a Hold and none advise selling. TWLO’s recent acquisition of Segment should propel the stock to new heights, possibly reaching the $350 mark within the next couple weeks.
Datadog (DDOG)
DDOG is one of the hottest tech stocks around. Though DDOG’s recent quarterly figures were slightly disappointing, its pullback to $75 was nothing but a knee-jerk reaction. This cloud superstar provides helpful monitoring services for applications, tools, databases, servers and more. DDOG's monitoring is accomplished through a SaaS-based platform that provides in-depth data analytics.
Check out DDOG's POWR Ratings and you will find it has “A” grades in each POWR Component except for its Industry Rank grade of “B.” DDOG is ranked second of 48 stocks in the Software - Business category. If that isn't enough to convince you to ride the DDOG train to riches, consider the fact that the analysts are painting a rosy picture for DDOG’s future.
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MSFT shares rose $0.60 (+0.27%) in after-hours trading Tuesday. Year-to-date, MSFT has gained 42.44%, versus a 10.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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