7 Cloud Computing Stocks to Lift Your Portfolio to New Heights

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Cloud computing sounds complicated, and it has become more sophisticated as it evolves. However, the basic idea behind the cloud is the same. The “cloud” is a euphemistic term for the delivery of different services via the internet. In its early days, the cloud was used exclusively for data storage. Here’s an easy example of why this was important.

Back when the internet was cutting its teeth, I worked in marketing communications. The need to comply with Total Quality Control Systems (TQCS) for our largest clients meant we had to save every version of our files. Every. Single. One. Now imagine that you’re producing a 120-page product catalog complete with photos and charts. Your hard drive is burning up just thinking about it. Yet that “data” had to be stored somewhere. And so we had a virtual server farm to try to warehouse all these graphic intensive (and memory sucking) files until we could archive them.

Other than the storage nightmare, consider that it was a pain to work remotely. You could copy a file from the server, but then were you working on the right file? I’m sure at least one person is reading this who remembers this pain.

The cloud takes that away. Cloud computing allows you to store files on a secure, remote server that everyone can access anywhere they have an internet connection. But it’s become so much more than that. Cloud computing now gives businesses a platform from which they can create applications and software. If that sounds confusing, I hope to simplify it in this presentation. To help you understand which cloud computing stocks, you may want to add to your portfolio, and we’ve created this special presentation. These are seven of the cloud computing stocks that will continue to grow with the sector.

#1 - Microsoft (NASDAQ:MSFT)

Microsoft (NASDAQ:MSFT) may be one of the more obvious and pricey choices among cloud computing stocks. However, it’s hard to imagine talking about cloud stocks to buy without mentioning Microsoft or Amazon (NASDAQ:AMZN). But since Amazon can be discussed for so many other reasons, I’ll leave its Amazon Web Services (AWS) out of this presentation.

Which gets me back to Microsoft and its Azure cloud service. Azure literally covers the world with data centers on every continent that are linked by fiber cable. Microsoft adds another barrier to entry because it manages these data centers' capacity to handle local laws and regulations.

Since the company pivoted to the cloud back in 2014, shareholders have been rewarded with a 36% annual gain over five years.

And unlike the other stocks in this presentation, Microsoft pays a dividend that has increased for the last 10 years (most recently in September 2020).

About Microsoft

Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services. Read More

Current Price: $392.92
Consensus Rating: Moderate Buy
Ratings Breakdown: 35 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $434.05 (10.5% Upside)

#2 - zScaler (NASDAQ:ZS)

The red-hot segment of a red-hot sector in cybersecurity. As more companies have gone to a work-from-anywhere model, the need for cybersecurity tools, such as those offered by zScaler (NASDAQ:ZS), have increased almost exponentially.

In the case of zScaler, the company gives customers the ability to protect their IT infrastructure and do so on a subscription basis. Analysts love this because it gives zScaler a predictable, recurring revenue stream.

zScaler is an example of both the risk and reward of cloud computing stocks. ZS stock is up 192% for the year (as of this writing). And while analysts give the stock a consensus buy rating, there are mixed reviews on whether the company’s stock is at a tipping point.

That shouldn’t necessarily be your concern. The question you have to ask is, does the company have an addressable market? It does. And is it around for the long haul? Again that answer appears to be yes. I talked with a more “technically savvy” friend who suggested zScaler may have more of a moat as a network security platform than CrowdStrike which offers an endpoint security platform.

About Zscaler

Zscaler, Inc operates as a cloud security company worldwide. The company offers Zscaler Internet Access solution that provides users, workloads, IoT, and OT devices secure access to externally managed applications, including software-as-a-service (SaaS) applications and internet destinations; and Zscaler Private Access solution, which is designed to provide access to managed applications hosted internally in data centers, and private or public clouds. Read More

Current Price: $174.33
Consensus Rating: Moderate Buy
Ratings Breakdown: 28 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $230.24 (32.1% Upside)

#3 - Okta (NASDAQ:OKTA)

I’m a big fan of the “understand what you’re buying” school of investing. And so, while some parts of the cloud computing sector can read like a foreign language to me, Okta (NASDAQ:OKTA) is easy to understand. You can imagine that you need a way to control access to that system once you have a cloud infrastructure.

Okta is the creator of a cloud-based identity management service. This allows their client base of approximately 9,000 organizations to manage their user identification and authentication for employees, contractors, and customers.

The company has a nice habit of beating analysts’ expectations for revenue and profit. And in its most recent earnings report, the company delivered positive EPS for the first time since going public. The company’s stock is up nearly 100% since the beginning of the year.

Analysts rate OKTA stock as a buy. And although the consensus price target suggests the stock could fall, recent analyst ratings suggest the stock may have an upward move of up to 10%. Should you believe it? Absolutely. Okta is widely viewed as the leader in the identity-as-a-service (IaaS) sector. It has revenue that is only a bit over 10% of the total addressable market of $55 billion.

About Okta

Okta, Inc operates as an identity partner in the United States and internationally. The company offers Okta's suite of products and services used to manage and secure identities, such as Single Sign-On that enables users to access applications in the cloud or on-premises from various devices; Adaptive Multi-Factor Authentication provides a layer of security for cloud, mobile, web applications, and data; API Access Management enables organizations to secure APIs; Access Gateway enables organizations to extend Workforce Identity Cloud; and Okta Device Access enables end users to securely log in to devices with Okta credentials. Read More

Current Price: $92.10
Consensus Rating: Hold
Ratings Breakdown: 10 Buy Ratings, 20 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $100.39 (9.0% Upside)

#4 - Twillio (NYSE:TWLO)

Like Okta, the business case for Twilio (NYSE:TWLO) is better understood when you think of what they do. Twilio is a software company that creates the pieces, or building blocks, for developers to put the company’s technology in things such as apps, messaging systems, etc. Think of the push notifications you receive to let you know about your ride-hailing service, an Airbnb reservation, even food delivery notifications. All are based largely on Twilio.

Like most cloud-based systems, a key benefit of Twilio is the speed at which it allows developerment to take place. What used to take weeks or months can now be done in hours.

The company continues to increase its active customer base. At this time, it has nearly 210,000. And with the company’s acquisition of Segment, a customer data platform, the company is forecasting its market opportunity to increase by over 25% (from $62 billion to $79 billion).

The company draws significant attention from analysts who give the stock a consensus price target of $328.64, with one analyst giving TWLO stock a price target of $550. That’s the nature of this red-hot segment.

About Twilio

Twilio Inc, together with its subsidiaries, provides customer engagement platform solutions in the United States and internationally. It operates through two segments, Twilio Communications and Twilio Segment. The company provides various application programming interfaces and software solutions for communications between customers and end users, including messaging, voice, email, flex, marketing campaigns, and user identity and authentication. Read More

Current Price: $59.49
Consensus Rating: Hold
Ratings Breakdown: 8 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $68.90 (15.8% Upside)

#5 - DataDog (NASDAQ:DDOG)

DataDog (NASDAQ:DDOG) operates in another niche of the cloud computing segment. In DataDog, the company focuses on the “observability” of a company’s cloud computing applications. As much as I loathe buzzwords, it’s important to understand the importance of observability to a company’s cloud platform.

DataDog gives companies “end-to-end, easy-to-use solutions” that help them optimize performance, plan resources and troubleshoot potential issues. The need for the company’s services is likely to increase as companies continue to move more of their IT infrastructure and applications to the cloud.

DataDog is operating in an increasingly competitive market. Companies like Splunk (NASDAQ:SPLK), New Relic, and Oracle (NYSE:ORCL) create cloud observability platforms. However, analysts like DDOG stock because of how the company has been able to innovate faster than the competition, allowing the company to have over 400 third-party integrations for software with security, program development, and operations.

Despite being up over 140% for the year, analysts still see a potential upside of nearly 10%.

About Datadog

Datadog, Inc operates an observability and security platform for cloud applications in North America and internationally. The company's products comprise infrastructure and application performance monitoring, log management, digital experience monitoring, continuous profiler, database monitoring, data streams and universal service monitoring, network monitoring, incident management, workflow automation, observability pipelines, cloud cost and cloud security management, application security management, cloud SIEM, sensitive data scanner, and CI visibility. Read More

Current Price: $123.37
Consensus Rating: Moderate Buy
Ratings Breakdown: 23 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $131.70 (6.8% Upside)

#6 - DocuSign (NASDAQ:DOCU)

DocuSign (NASDAQ:DOCU) was a pandemic winner and then a victim of panic selling. But this is an example of where the buyers had it right, and the sellers may be missing the longer-term story.

For the uninitiated, DocuSign is on a paperless society's vanguard by enabling electronic signatures for important financial documents. For obvious reasons, the company enjoyed tremendous growth during the pandemic as contactless everything was

However, DocuSign’s service was an idea whose time had come long before the novel coronavirus made it necessary. And the simple fact is that once consumers have begun signing documents remotely, they’re not going back. Don’t believe me? Let me ask you when the last time your child has called you out of anything other than necessity is? I’ll hang up and wait. There are certain times when we hit an inflection point and aren’t going back.

Those investors who bought DOCU stock on the dip in September have been rewarded with a tidy gain of around 15%. And analysts believe the stock has further to go.

About DocuSign

DocuSign, Inc provides electronic signature solution in the United States and internationally. The company provides e-signature solution that enables sending and signing of agreements on various devices; Contract Lifecycle Management (CLM), which automates workflows across the entire agreement process; Document Generation streamlines the process of generating new, custom agreements; and Gen for Salesforce, which allows sales representatives to automatically generate agreements with a few clicks from within Salesforce. Read More

Current Price: $56.81
Consensus Rating: Hold
Ratings Breakdown: 2 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $60.25 (6.1% Upside)

#7 - Trade Desk (NASDAQ:TTD)

Earlier this year, I wouldn’t have included The Trade Desk (NASDAQ:TTD) on a list of cloud computing stocks to buy. The digital ad-buying platform is in a battle for supremacy with entrenched suspects in the ad platform game such as Amazon, Facebook (NASDAQ:FB), and Alphabet (NASDAQ:GOOGL).

The question I had at that time was the “walled gardens” that these companies created. Simply put, when you enter “ice skates” on your Google search engine, and you start getting ads about ice skates, it’s not by accident. Google is anticipating your desire to purchase ice skates. But they do so as a curated service. In other words, they don’t sell your data.

The Trade Desk opts for an open internet platform that tries to personalize the content through programmatic advertising. In this model, companies target content providers that attract their target consumers. The idea is to fine-tune their ad spend and measure their return on investment (ROI).

If the company’s recent quarter is any indication, programmatic is starting to gain traction. The company’s revenue increased by 32%, which was higher than the 13% decline in the prior quarter. And that has sent TTD stock soaring nearly 25% since the report came out on November 5.

About Trade Desk

The Trade Desk, Inc operates as a technology company in the United States and internationally. The company offers a self-service cloud-based platform that allows buyers to plan, manage, optimize, and measure data-driven digital advertising campaigns across various ad formats and channels, including video, display, audio, digital-out-of-home, native, and social on various devices, such as computers, mobile devices, televisions, and streaming devices. Read More

Current Price: $81.85
Consensus Rating: Moderate Buy
Ratings Breakdown: 22 Buy Ratings, 2 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $89.75 (9.6% Upside)

Cloud computing stocks were starting to look a little overheated heading into 2020. The pandemic moved millions of workers to remote work and the second wave of cloud computing mania arose. And it’s not going away anytime soon. Ask yourself this question, are companies going to be looking to collect more data or less? Is 5G going to make us less dependent on technology or more?

We are a connected world, and the cloud will be necessary to keep those connections intact and secure. With that said, this is an industry in which valuations are … in the clouds. And that means that there is the potential for some correction either due to profit-taking or normal pullbacks. However, the long-term narrative for cloud computing is not going to go away. Companies are not likely to walk away from the cloud, even if their employees become centralized once again.