3 Cloud Software Leaders Positioned for AI Upside

Key Points

• ServiceNow leverages AI-driven workflows and virtual agents to boost enterprise efficiency and drive strong subscription revenue growth.
• Salesforce is embedding generative AI into its CRM platform, expanding margins and attracting thousands of new enterprise customers.
• Datadog offers advanced observability and machine learning tools to help DevOps teams monitor, secure, and optimize cloud infrastructure.

Why were the Magnificent Seven stocks so impressive in 2024, and why are they expected to lead the market for years to come? For many of them, the driving factors were two themes: cloud computing and artificial intelligence (AI). In fact, three of these Mag 7 tech stocks, Amazon.com Inc. NASDAQ: AMZN, Microsoft Corp. NASDAQ: MSFT, and Alphabet Inc. NASDAQ: GOOGL, are the top three cloud computing companies based on revenue from cloud services.

These hyperscalers are driving global data center demand. For those seeking alternative opportunities in cloud software, several SaaS companies stand out. They incorporate AI into their platforms, built on top of providers like AWS, Azure, and Google Cloud. These firms are essential for strengthening customer engagement, increasing productivity, and opening new revenue channels.

While their stock prices are high, the growing enterprise investment in AI solutions suggests these three cloud software stocks still have significant growth potential.

ServiceNow: Automating Workflows With AI

ServiceNow NYSE: NOW is incorporating AI into its Now Platform to help customers automate workflows across HR, customer service, and operations. Customers get AI-powered virtual agents that use predictive intelligence to help cut costs and improve response times.

The company’s pricing power is seen in its strong quarter, in which it exceeded the high end of its subscription revenue guidance. ServiceNow is expecting growth in the mid-20% range. However, in its latest earnings report, it did limit its guidance.

That's had no impact on the stock, which has been up 40% since the earnings report. At 18x forward sales, NOW stock is not cheap, and it is showing some resistance near its consensus high. However, several analysts recently raised their price targets. A strong earnings report could push the stock past this consolidation period, which could put a new all-time high in play.

Salesforce: Embedding AI Across the Customer Journey

As its ticker symbol indicates, Salesforce Inc. NYSE: CRM is a leader in customer relationship management. The company is embedding generative AI across its cloud ecosystem through its Agentforce platform. This is an add-on and extension to the company’s core products, and has attracted over 4,000 paying customers since its October 2024 launch.

After strong growth in 2024, CRM stock is down about 18% in 2025. However, analysts don’t expect that to last long. The Salesforce analyst forecasts on MarketBeat give the stock a consensus price target of $349.08, which is 27% above its closing price on July 8.

CRM stock is also attractively valued at approximately 7x forward sales, a valuation in line with its historical average. Analysts expect steady earnings growth in the mid-teens and have generally positive views, though some caution that near-term upside may be more moderate after recent gains. Still, the company’s pivot to profitable growth and AI monetization has improved sentiment considerably.

Datadog: The Digital Control Room for the Cloud

With a $50 billion market cap, Datadog Inc. NASDAQ: DDOG is the smallest company on this list. But if the past three months are any indication, it may have the most upside. DDOG stock is up more than 67% over that span, and the stock has pushed positive year-to-date. Some of that growth is due to the company’s inclusion in the S&P 500. However, it’s important to understand why the company was added to that exclusive list.

Datadog is a leader in log management and observability software. The company’s platform functions as a “digital control room” for all the apps, websites, and servers that are in use. Customers can see everything that’s happening so as to monitor performance better, address issues early, understand system usage, and proactively secure systems.

Datadog is integrating machine learning-driven anomaly detection and forecasting into its platform. That aligns with the need for DevOps teams to proactively spot issues before they disrupt services.