Stocks to buy

The Cloud Computing Climb: 3 Stocks to Buy Before They Head Skyward

Technology continues to advance and offer businesses and consumers more possibilities. Cloud computing is one major development that has seen tremendous growth over the years. Many shareholders who initiated positions in cloud computing companies early on have seen their investments significantly outperform the S&P 500.

Cloud computing started to become mainstream in 2006 and continues to expand each year. The business model results in steady, recurring revenue since most companies cannot sufficiently function online if they pull the plug on cloud computing services. Cloud computing allows companies to become more productive and reduce the risk of cyber attacks. 

Cloud computing has been a top-performing sector over the past few years. Investors may want to consider accumulating these cloud computing stocks as they march higher.

Amazon (AMZN)

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Amazon (NASDAQ:AMZN) got a head start among the big tech companies by releasing Amazon Web Services in 2006. While many people associate Amazon with its massive e-commerce store, the company has made great strides in cloud computing. 

Amazon Web Services reached $23.1 billion in the third quarter of 2023, a 12% year-over-year (YoY) gain. AWS revenue made up 16% of the corporation’s total revenue. Amazon as a whole reported 13% YoY revenue growth.

Investors may want to hone in on the company’s expansion into advertising revenue. Amazon has quickly gained ground on this front and generated $12 billion in ad revenue during the third quarter. That marks a 26% YoY growth rate. Amazon has been running ads on its platform since 2012 and made it a separate category in its financials in the fourth quarter of 2021.

Amazon is well-diversified and delivered a 70% gain over the past year. The company trades at a 38-forward P/E ratio.

ServiceNow (NOW)

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ServiceNow (NYSE:NOW) allows companies to simplify workflows and reduce manual tasks. The platform is cost-effective for businesses and helps companies keep data secure. ServiceNow has achieved high revenue growth for several years, including 25% YoY growth in the third quarter. The firm exceeded guidance in the third quarter and raised 2023 subscription revenues and operating margin guidance.

The company netted 83 new transactions of over $1 million in annual recurring revenue. The number of transactions was up by 20% YoY. That indicates customers are willing to pay more money for the company’s platform. ServiceNow even has 49 customers who pay over $20 million per year for the ServiceNow platform.

The company continues to achieve these impressive growth rates while maintaining a 98% renewal rate. The high renewal rate is a combination of ServiceNow’s quality platform and how critical cloud computing has become for businesses. It’s often a pain to switch from any platform and many business owners get comfortable with what they use. This dynamic bodes well for ServiceNow investors.

Alphabet (GOOG, GOOGL)

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Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) generates most of its revenue from online advertising. However, the company recognized this problem several years ago and diversified into other areas like cloud computing. The effort to diversify motivated the company’s decision to change its name from Google to Alphabet.

Alphabet now makes most of its revenue from advertisements and cloud computing. Google Cloud made up more than 10% of the company’s revenue in the third quarter of 2023. Google Cloud revenue has been growing at a faster pace than ad revenue and could lead to more gains in the future. Alphabet closed out the quarter with 11% YoY revenue growth. 

The company has a valuation above $1 trillion and is a staple in many mutual funds. Shares gained 58% over the past year and are up by 168% over the past five years. Alphabet has a pristine balance sheet that features $176.3 billion in total current assets compared to $86.3 billion in total current liabilities.

On this date of publication, Marc Guberti held a long position in NOW. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.