MyWallSt’s 5 Best Cloud Stocks To Invest In, Ranked

We delve into the five best cloud stocks to invest in that are benefiting from a shift to the cloud in a work-from-home economy.

Dec. 10, 2020

The global pandemic has undoubtedly accelerated a shift to the cloud, with all five of these companies’ stock gaining significantly in recent times. These companies have enabled many of us to continue our work from home and have proven to be resilient in the last few months. 

5 Best cloud stocks to invest in

1. Microsoft

Microsoft (NASDAQ: MSFT) is the largest of the five companies on our list and is second only to Amazon‘s (NASDAQ: AMZN) AWS in terms of market share in the cloud space. 

In the latest quarter, Microsoft’s Intelligent Cloud segment grew by 20% to $13 billion, driven by Azure, which grew 48% compared to AWS’s revenue growth of 29% to $10.8 billion. Microsoft’s commercial cloud revenue increased by 30% year-over-year due to increased demand for its offerings such as Office 365 along with higher margins. 

E-commerce is another area of growth during COVID-19 and Amazon’s competitors may use Microsoft’s cloud offerings instead. Microsoft’s cloud growth can also be demonstrated by the victory in winning the $10 billion JEDI contract with the U.S Department of Defense last year. 

Microsoft has many strings to its bow, but its cloud segment is an integral part of its business.

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2. Datadog

Datadog (NASDAQ: DDOG) is a monitoring and analytics platform that enables companies to manage all their cloud-based software. This is vital for companies using increasing amounts of data and cloud-based applications to run their businesses. 

Datadog is growing rapidly with Q3 results reflecting this. Revenue increased 61% year-over-year to $155 million, and the number of customers with annual recurring revenue (ARR) of $100,000 or more increased to 1,107 from 727 this time last year. Many well-known companies, such as Peloton (NASDAQ: PTON) and Airbnb use Datadog, which is a testament to the company and its product. 

Datadog is also founder-led with CEO Oliver Pommel and co-founder/CTO Alexis Le-Quoc both owning considerable stakes in the business. Before its IPO in 2019, Datadog turned down an acquisition offer from Cisco (NASDAQ: CSCO), demonstrating a clear long-term vision and belief in its prospects as a stand-alone company. 

3. Twilio

Twilio (NYSE: TWLO) is a platform-as-a-service that enables software developers to use digital communication such as calls or texts to enhance the user experience. This founder-led company’s offerings are used by high-profile customers such as tech giants Netflix (NASDAQ: NFLX) and Zoom (NASDAQ: ZM), among others.

Twilio has a geographically diverse revenue stream, with 27% of revenue coming from outside the U.S, which is increasingly important during difficult times. In Q3 of 2020, revenue grew by 52% year-over-year to $448 million and dollar-based net expansion 137% driven by a digital transformation within many companies. A report by Twilio stated that companies’ digital communication was accelerated by an average of six years due to COVID-19. 

Twilio’s top 10 customers accounted for 14% of revenue, with Facebook‘s (NASDAQ: FB) Whatsapp contributing 7% alone. This is not a massive cause for concern but rather a point to keep an eye on. 

4. Veeva

Veeva (NYSE: VEEV) is a founder-led business that operates cloud-based software for the global life sciences industry and has over 600 customers. It is a mundane yet profitable business that has rewarded investors. 

Despite minor COVID-19 disruptions, the company has remained innovative, as highlighted in its Q3 revenue of $377.5 million, up 34% year-over-year. Subscription revenue accounts for the majority of this, which provides a stable revenue stream. Management has a long-term goal of hitting $3 billion in revenue by 2025 and is “more confident than ever” about reaching it with revenue for the current year forecast at $1.44 billion. 

Veeva is also expanding into other industries other than life sciences, which it had previously been unable to do due to an agreement with Salesforce (NYSE: CRM). Veeva launched QualityOne, which is targeted at highly regulated industries such as cosmetics. 

5. Fastly

Fastly (NYSE: FSLY) operates an edge computing platform and content delivery network that enables companies to handle traffic on apps and websites. The market for these is estimated to be valued at $35.8 billion by 2022, which leaves a massive growth opportunity.

Fastly’s Q2 revenue increased by 42% year-over-year with both the number of customers and average spends growing. The net retention rate was also 147%, up from 137% in Q2.

One of Fastly’s most important customers is TikTok, which those bullish on the stock would deem a testament to the product, but others may see this as risky considering the tumult that has surrounded the Chinese-owned social media giant. With a 50% drop in the share price back in October thanks to the regulatory uncertainty around TikTok, investors will need to keep an eye on this potential over-reliance on a single customer.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.