In March, I published a piece on the best cloud computing exchange-traded funds (ETFs). For this article, I’m discussing the top cloud computing stocks for 2023.
As I often like to do, I scour ETFs to develop stock ideas. In my previous piece, the funds I selected were the First Trust Cloud Computing ETF (NASDAQ:SKYY), the WisdomTree Cloud Computing Fund (NASDAQ:WCLD) and ARK Next Generation Internet ETF (NYSEARCA:ARKW).
I pointed to a statistic from McKinsey, which “estimates that the cloud adoption by Forbes Global 2000 companies could generate $3 trillion in EBITDA by 2030.”
Below I’ve selected three cloud stocks with high growth potential, one from each ETF. I aimed for names with at least 20% revenue growth in each of the past three years, GAAP or even non-GAAP profitability, a market capitalization of at least $500 million, a bullish analyst rating and a target price at least 10% above where it’s currently trading.
HubSpot (NYSE:HUBS) is the 19th-largest position of SKYY with a 2% weighting.
HubSpot provides customers with a cloud-based customer relationship management (CRM) platform to drive their businesses. From small businesses to large enterprises, HubSpot’s various hubs — marketing, sales, service, content management software and operations — help firms grow while connecting all of their data.
With more than 167,000 customers around the world, HubSpot has three-year annualized revenue growth of 36.9%. In 2022, it had a non-GAAP operating profit of $169.1 million, up 44% over 2021. It also grew its customer base by 24% last year.
Thirty analysts are covering its stock, with 24 giving it a “buy” rating. Their average target price of $452.38 is about 9% higher than where shares currently trade. That’s below the 10% threshold I mentioned above following a 3%-plus pop in the stock today. Thus, investors may want to wait for a pullback before getting in.
For 2023, management expects revenue of at least $2.05 billion, with non-GAAP operating income of $250 million at the midpoint of its guidance. That would represent growth of 18.5% and 48%, respectively.
Veeva Systems (VEEVA)
Veeva Systems (NYSE:VEEV) is the 10th-largest position of WCLD with a 1.6% weighting. Veeva also happens to be the 38th-largest position of SKKY.
I last discussed Veeva Systems in June 2020. At the time, I liked the provider of cloud-based software for the life sciences industry because of its free cash flow generation and cash on its balance sheet.
Over the past three years, Veeva has grown revenue and operating income annually by 25% and 17.1%, respectively. It has generated free cash flow of $780.5 million in the trailing 12 months.
There are 29 analysts covering VEEV stock, with 17 giving it an “overweight” or “buy” rating. Their average target price of $205.88 is 16% higher than where it currently trades.
For its most recent fiscal year, which ended Jan. 31, Veeva delivered GAAP net income of $487.7 million on $2.16 billion in revenue. It finished the year with 1,388 customers, up 14%. In fiscal 2024, management expects revenue of at least $2.35 billion, with non-GAAP operating income of $800 million. That would represent growth of 8.8% and 64%, respectively.
Nvidia (NASDAQ:NVDA) is the 18th-largest position of ARKW, which is managed by famed investor Cathie Wood, with a 1.5% weighting.
Nvidia Chief Investment Officer (CEO) Jensen Huang is one of the tech industry’s best leaders. His current push of the chip designer into artificial intelligence (AI) will continue to pay dividends for years.
In March, InvestorPlace’s Louis Navellier wrote:
What really caught investors’ attention, however, were some statements made by Nvidia CEO Jensen Huang. He boldly declared, “AI is at an inflection point, setting up for broad adoption reaching into every industry.”
Huang assured that his company is “set to help customers take advantage of breakthroughs in generative AI and large language models.”
Over the past three years, Nvidia grew its revenue and operating income by 35.2% and 25.1%, respectively, on an annualized basis, with free cash flow of $3.8 billion in the trailing 12 months.
There are 47 analysts covering its stock, with 34 giving it an “overweight” or “buy” rating. Their average target price of $300 is 11% higher than where shares currently trade.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.