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The pandemic accelerated the adoption of cloud-based computing. Companies from all sectors were forced to establish or increase their online presence.
However, companies that were once hesitant to digitize recognize the countless benefits of shifting their operations to the cloud.
This article will highlight the best cloud computing companies that are facilitating this change. As a friendly reminder, these hot cloud stocks can be bought and sold on an online stock broker.
What is Cloud Computing?
Cloud computing is the delivery of on-demand computing services — from applications to storage and processing power — typically over the internet and on a pay-as-you-go basis.
Before cloud computing, companies had to own or maintain their own centralized IT infrastructure, which was extremely expensive and complex.
By migrating to “the cloud”, firms only pay for what they use and when they use it, which allows them to save money and scale their operations rapidly.
The services that cloud companies provide generally fall into one of three main categories, including:
Infrastructure-as-a-Service (IaaS) – this is the fundamental building blocks of computing, entailing access to computing resources such as servers, storage, and networking.
- Examples: Amazon Web Services (AWS) and Microsoft Azure
Platform-as-a-Service (PaaS) – this provides users with a cloud environment in which they can develop, manage, and deliver their applications by using a suite of prebuilt tools offered by the provider.
- Examples: AWS Lambda and the Google App Engine
Software-as-a-Service (SaaS) – this offering provides users with access to a vendor’s cloud-based software and applications via a subscription model.
- Examples: Salesforce, Microsoft Office 365, and DocuSign
As you can see, several of these companies, like Amazon and Microsoft, compete in each one of these service domains. But without further ado, let’s look at the best cloud computing stocks.
Best Cloud Computing Stocks
The clear leader of the pack.
Amazon seemingly has its hands in everything, from grocery stores to healthcare to space travel. These endeavors are made possible by Amazon Web Services (AWS), its profitable cloud platform.
Amazon takes its enormous profits from AWS, which were responsible for 63% of the company’s operating profits in 2020, and essentially subsidizes its other pursuits, allowing them to operate in the red until the Amazonian recipe gets its footing and its game over for another industry.
So, just how successful is AWS? Some call it the best business globally — as of Q4 2020, AWS’ market share in the worldwide cloud infrastructure market amounted to 32 percent.
That’s more than the combined market share of its two largest competitors, Microsoft and Google.
Amazon Web Services continues to capitalize on its position as the leader in public cloud computing and is still growing – its previous year’s revenue of $45.3 billion was up 30% year-over-year.
Many believe that Amazon will preemptively spin-off AWS into its own company to fend off antitrust allegations from regulators.
In fact, former AWS vice president Tim Bray believes that spinning off AWS could unleash additional business growth because it would eliminate any potential hesitance clients might feel about doing business with a company they compete against.
While the short-term future of Amazon and AWS is unpredictable, one thing’s for sure: AWS will continue to dominate the cloud.
The old dog is learning new tricks.
Microsoft’s third CEO, Satya Nadella, succeeding Bill Gates and Steve Ballmer, realized that the company needed to re-spark its innovation culture to remain competitive in the tech world.
In 2014, Nadella shifted Microsoft’s focus to its cloud service Azure — a pivot that reinvented the software giant and propelled it to astonishing heights.
Today, Microsoft Azure accounts for 20% of the worldwide cloud infrastructure market. While Microsoft does not release exact Azure revenue numbers (to avoid comparisons with AWS), its revenue grew 48% in Q1 2021.
Microsoft’s moat has been its full suite of SaaS products — from its longtime cash cow Office 365 to its new Teams platform — but its effort to build up its IaaS offering has done wonders for the stock price.
Microsoft is leveraging its enormous and loyal enterprise base to make Azure one of the strongest players in the cloud-space.
It has benefitted from its SaaS foundation. Many customers prefer to integrate their cloud products under the same roof and opt for Azure instead of AWS.
Wall Street favors companies with scalable recurring revenue, such as Azure products. Its suite of sticky products suggests the company will continue to impress investors.
Yes, we, too, are good at the cloud.
We’re talking tech — so you know it can’t be long before we mention Google. The Silicon Valley darling has cornered a respectable 9% of the cloud market with its Google Cloud Platform (GCP).
Companies that seek advanced AI and machine learning capabilities have been gravitating toward the Google Cloud Platform over AWS and Azure.
Cloud expert Nick McQuire of CSS Insight believes that Google Cloud is “the market’s fiercest challenger” because of its engineering muscle, particularly how customers gain access to and engage Google engineers for co-development.
Additionally, the firm’s culture of innovation and encouragement of open source makes it an attractive choice for customers who prioritize these ideals.
Google Cloud CEO Thomas Kurian suggests that they solve the “multi-cloud problem” better than Microsoft or Amazon, claiming its latest “Anthos” product — which is a hybrid cloud offering — unifies administration, policies, and security better than its competitors.
However, Google’s parent Alphabet disclosed for the first time that the cloud unit has lost money for years — burning at least $4 billion in each of its last three years.
Revenue growth slowed slightly from 53% in 2019 to 47% in 2020 as well.
Kurian said he’s focused on growth for now, with an eye toward profitability later. “Scale will bring material improvements in profitability. And we’re very focused on that. We know in this business we need scale in order to be profitable.”
It will be exciting to watch Google Cloud compete for and gain market share in the coming years.
The gold standard of SaaS.
If you’re reading about cloud companies, you’ve definitely heard of Salesforce, but what exactly does Salesforce do?
Salesforce offers the #1 customer relationship management (CRM) service on the market — hence their ticker symbol CRM.
Salesforce’s flagship offering, “Customer 360”, is a suite of cloud-based applications that organize your company’s data into a single customer view.
Companies that use Customer 360 select only the applications they need, resulting in a completely customizable dashboard in addition to lower costs and complexity.
However, Salesforce boasts that companies who add more than one app see more productivity, efficiency, and a better return on investment.
Salesforce currently offers 14 apps:
- Einstein AI
As you can see, Salesforce is truly the king of SaaS for corporations and small businesses alike.
Salesforce’s products are sticky, and their customer retention rate is through the roof. This kind of recurring revenue bundle and upsell opportunities are why its stock has performed so well.
Its subscription and support revenues for Q4 202 were up 20% year-over-year and topped out at $5.82 billion.
This 20-year-old company is pioneering the digital transformation for over 3 million subscribers — its cloud platform is truly changing how companies and customers interact.
China’s version of Amazon, but bigger.
Alibaba Cloud is the cloud computing arm of the Alibaba Group (BABA). It has garnered 6% of the worldwide cloud market share, landing it just behind Google as the world’s 4th largest cloud computing company.
Like Amazon, this Chinese conglomerate has operations in nearly every sector of the economy, from retail to payments, and now the trifecta of cloud services (IaaS, PaaS, and SaaS).
While Alibaba Cloud is the largest cloud service provider in the Asia Pacific region, it increasingly sets its sights on global adoption.
The company’s unprecedented $28 billion investment plan suggests that it means business.
“We will continue increasing investments in the next three years to strengthen our infrastructure, our solutions and our role in the wider technology ecosystem towards being the trusted partner of choice not just in the Asia Pacific, but for the global digital economy by 2023,” said Jeff Zhang, president of Alibaba Cloud Intelligence in April 2020.
Cybersecurity is as important as storage.
CrowdStrike is keeping the cloud safe and free of pollution — it is an industry leader and among the best cybersecurity stocks.
CrowdStrike uses artificial intelligence to predict new attacks and to update its defense protocols in real-time.
The company’s co-founder, George Kurtz, calls CrowdStrike “the Salesforce of Cybersecurity” because it redefines company security standards much like Salesforce redefined how companies communicate with customers.
Like Salesforce, CrowdStrike offers a host of security services that customers can select and subscribe to, resulting in a customizable experience that allows clients to only pay for the services that they need.
Each company will need a cybersecurity fortress as more and more of their business operations migrate to the cloud.
CrowdStrike is poised to be the favorite choice in the hypercompetitive cybersecurity space.
Alternatives to Cloud Computing Stocks
Investors looking for diversification in the highly competitive cloud space may be interested in a cloud computing ETF.
Additionally, these ETFs tend to hold smaller cloud companies that still have high growth potential.
These ETFs include companies that stand to benefit from the increased adoption of cloud-based computing, including firms that provide and develop IaaS, PaaS, and SaaS.
First Trust Cloud Computing ETF (SKYY)
- Performance over 1-Year: 68%
- Expense Ratio: 0.60%
- AUM: $6.45B
- Top Holdings: Kingsoft Cloud Holdings, Google, and MongoDB
Global X Cloud Computing ETF (CLOU)
- Performance over 1-Year: 66%
- Expense Ratio: 0.68%
- AUM: $1.48B
- Top Holdings: Zscaler, Twilio, and Shopify
WisdomTree Cloud Computing ETF (WCLD)
- Performance over 1-Year: 96%
- Expense Ratio: 0.45%
- AUM: $1.36B
- Top Holdings: Equal weight of 59 companies
Wedbush ETF Global Cloud Technology ETF (IVES)
- Performance over 1-Year: 57%
- Expense Ratio: 0.68%
- AUM: $59M
- Top Holdings: Kingsoft Cloud Holdings, Clorox, GDS Holdings
Researching Cloud Computing Stocks
You’ll be hard-pressed to find a better place for insights on cloud computing stocks than the Motley Fool.
Their team of research analysts and contributors keep their ears to the ground (and the cloud) to deliver the most actionable information available on Wall Street.
Join the Motley Fool today, so you don’t miss out on their three must-buy cloud stocks for 2021.
Cloud Computing Stocks FAQs
What are the best cloud computing stocks?
The best cloud computing stocks (in terms of providing cloud infrastructure) are the FAAMG giants: Amazon, Microsoft, and Google.
These tech giants dominate the IaaS space and control over 60% of the worldwide ecosystem.
However, there are several software-as-a-service (SaaS) companies that may be worth your time and money as well: Salesforce, Dropbox, Zoom, and Adobe.
What companies will benefit the most from cloud computing?
Every company in every industry can benefit from cloud computing because they use technology to conduct business operations.
However, companies that effectively embrace digital transformation will benefit exponentially more than those who are hesitant to change.
What are the top 10 technology stocks?
There are countless metrics and combinations of indicators that investors can use to determine the top 10 technology stocks.
For simplicity, we’ll turn to market capitalization to rank the top technology companies by size:
#1. Apple (AAPL) $2.1 trillion
#2. Microsoft $1.8 trillion
#3. Amazon $1.6 trillion
#4. Alphabet (Google) $1.4 trillion
#5. Tencent $849 billion
#6. Facebook (FB) $754 billion
#7. Tesla (TSLA) $675 billion
#8. Alibaba $647 billion
#9. TSMC $557 billion
#10. Samsung $508 billion
What are the best AI stocks to buy right now?
Artificial intelligence is now used in every sector under the sun but investing in Big Tech companies is the most effective way to gain AI exposure.
Here are the best AI stocks to buy right now:
- Palantir (PLTR)
- Nvidia Corp (NVDA)
- Alphabet (GOOG, GOOGL)
- IBM (IBM)
- Facebook (FB)
- Salesforce (CRM)
- Micron Technology (MU)
- Amazon (AMZN)
The Bottom Line: Best Cloud Computing Stocks
Like most verticals in the technology environment, Big Tech companies lead the charge, and it’s no different when it comes to cloud computing.
We believe the best way to get exposure to the rise of cloud computing is to invest in companies providing the infrastructure.
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Sean Graytok owns shares of Amazon.com, Inc., Microsoft Corp., Alphabet Inc., Salesforce.com, Inc., CrowdStrike Holdings, Inc., and Global X Cloud Computing ETF.