Should Investors Buy These Cloud Stocks Amid The Recent Pullback?
2020 was a banner year for cloud computing stocks. In the past year, if you wanted to make money, the easiest way was to buy top cloud computing stocks in the stock market. Thanks to the coronavirus pandemic, demand for cloud services skyrocketed to all-time highs. With companies focusing on digital acceleration, cloud infrastructure is vital to have. Being able to conveniently store and access company data is paramount as companies are still pushing their projects and innovations amidst these troubled times. Investors and companies seem to be aware of these trends. For instance, Microsoft (NASDAQ: MSFT) has enjoyed a strong increase in revenue in the cloud segment as reflected from their latest financials.
There’s no denying that valuations are still high despite the recent pullback. Some say these top cloud stocks are priced to perfection. As such, when there’s a slight disappointment in their earnings report, it is enough to send these stocks sliding. But technology is sticky. Many companies are not going to uproot their software abruptly. The benefits from cloud apps will continue to manifest even after offices reopen. Thus, many of the best cloud stocks to watch will continue to benefit. Let’s put it this way. You can think of it as the growth being pulled forward, but there is still plenty of growth ahead.
With the increasing viability of cloud computing, it could appear to some as a profitable endeavor. However, there is no such thing as easy gains. Even the most seasoned investors would have a challenge sorting the wheat from the chaff in this ever-growing industry. Some may stay clear from cloud stocks amid the recent weakness, but others may see the dip as an opportunity to buy at discounts. If you are with the latter, do you have these cloud stocks on your watchlist in the stock market today?
Cloud Computing Stocks To Watch In 2021
- Cloudflare Inc. (NYSE: NET)
- Fastly Inc. (NYSE: FSLY)
- Amazon.com Inc. (NASDAQ: AMZN)
- Twilio Inc. (NYSE: TWLO)
Cloudflare
Cloudflare is possibly one of the most exciting cloud companies to look out for if you are investing for the long term. For those unfamiliar with the business, Cloudflare’s aim is to build a better and safer internet. Some of the company’s potential growth drivers include serverless computing, internet of things (IoT), and 5G. These present massive opportunities for the company to tap into. With more businesses moving their operations to the cloud, Cloudflare could see explosive growth in this burgeoning cybersecurity industry. That’s because of its role in safeguarding and speeding up the internet.
“Firing on all cylinders, we’ve already announced or delivered more than 100 products and capabilities this year. There’s no slowing down as we continue to deliver business-critical offerings and displace point solutions with Cloudflare’s robust global network.”- Matthew Prince, CEO, and co-founder.
The company reported its first-quarter earnings on Thursday, in which revenue rose 51% year-over-year to $138.1 million. The network security and content delivery network (CDN) provider also sees strong large customer growth, with a record addition of roughly 120 large customers in the quarter. More importantly, large customers now represent greater than 50% of revenue. Following these earnings, the NET stock is now trading 7.14% higher in pre-market trading as of 7.09 a.m. ET. With such strong fundamentals, should investors buy NET stock right now?
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Fastly
Fastly was one hot stock to watch in 2020. The company is a key player in the CDN space. Arguably, the real trick up Fastly’s sleeves are its edge computing capabilities. But the reason many investors are paying attention to Fastly right now is that FSLY stock was tumbling, closing nearly 30% lower on Thursday’s intraday trading. This came as the edge-computing specialist came up slightly short of estimates in its first-quarter earnings report. Separately, CFO Adriel Lares stepping down as CFO also spooked investors.
But let’s take a step back and digest these earnings carefully. Do you think FSLY stock is being overly punished here? Fastly’s revenue came in 35% in the quarter to $84.9 million, which was only slightly short of estimates at $85.1 million. While the net retention rate was slightly lower than its previous quarter, its total customer count actually increased from 2,084 in the fourth quarter to 2,207. Sure, the company may have missed top and bottom-line estimates, but the difference was only marginal.
According to CEO Joshua Bixby, the company observed that many of the trends that emerged last year appear to have become permanent, even as the economy reopens. He believes Fastly is uniquely positioned to serve companies as they adjust to this new reality. Thus, would you consider buying FSLY stock on the dip?
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Amazon.com
Amazon is a multinational technology company that focuses on e-commerce and cloud computing. The company has been one of the most influential economic forces in the world and is also one of the world’s most valuable brands. AMZN stock surged to an all-time high of $3,554 before retreating to a current level of around $3,300. That initially seems like a “buy the rumor, sell the news” kind of trade for traders, especially after a strong earnings beat.
An interesting fact is, not only are traders taking some profit, CEO Jeff Bezos this week sold nearly $2 billion worth of AMZN stock. He previously said he’d sell about $1 billion in AMZN stock each year to fund his space exploration company, Blue Origin.
In case you have missed it, the company reported net sales of $108.5 billion in the first quarter, a 44% increase year-over-year. Net income increased to $8.1 billion for the quarter or $15.79 per diluted share. The company also ended the quarter with a free cash flow of $26.4 billion. Looking ahead, Amazon said it expects to generate revenue between $110 billion and $116 billion for Q2. All things considered, would you say that AMZN stock is trading at an attractive valuation right now?
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Twilio
After easily beating its own forecast for a fifth consecutive quarter amid strong pandemic growth, some investors were surprised why Twilio stocks were pulling back on Thursday’s intraday trading. Despite having posted a strong first-quarter earnings report on Wednesday, TWLO stock didn’t receive an immediate boost and many are punishing the stock because the company projected a June quarter loss that would be wider than Wall Street has been expecting.
For the quarter, revenue came in 62% higher to $590 million, beating analysts’ estimates of $532.9 million. The company also posted a dollar-based net expansion rate of 133%. This simply means that existing customers increased their spending by 33%. Overall, the company has brought in another solid quarter, but investors appear to be treading cautiously.
CEO Jeff Lawson believes the shift in the way companies engage with their customers is driving a generational opportunity for Twilio. Now, TWLO stock is not exactly cheap by any measure. However, if you believe that the company could grow into its valuation, should you buy TWLO stock on its recent weakness?
