Discovering technological innovations and finding industry leaders can help investors outperform the stock market. This strategy worked well for investors who focused on companies with exposure to artificial intelligence. Cloud computing stocks were around before artificial intelligence became mainstream.
Many of the top tech stocks operate in cloud computing to some capacity. Some corporations have cloud computing as a segment, while others rely on the industry to generate revenue.
Investors looking for promising cloud computing stocks may want to consider these picks.
ServiceNow (NOW)
ServiceNow (NYSE:NOW) is a cloud computing company that helps businesses increase productivity. The firm has over 8,000 customers and boasts a 99% renewal rate for its software.
The firm achieved 25.5% year-over-year revenue growth in Q4 2023 and now has almost 2,000 customers who pay more than $1 million per year. The company’s solutions don’t only help with productivity. ServiceNow also allows companies to increase employee retention and lower total costs.
ServiceNow raised its 2024 guidance and is expanding into AI partnerships. CEO Bill McDermott cited generative AI as contributing to the company’s strong financials.
The stock has outperformed many indices. Shares are up by 78% over the past year and have gained 213% over the past five years. A rising net profit margin on the back of net income nearly doubling year-over-year in Q4 2023 suggests the stock can continue its rally in the long run.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) generates a large percentage of its revenue from the cloud. The Microsoft Cloud segment was up by 25% year-over-year in Q2 FY24. Growth in cloud computing propped up the business and resulted in company-wide 18% year-over-year revenue growth. Net income was up by 33% year-over-year.
Microsoft is a staple stock that you will find in many index funds, mutual funds, and ETFs. It’s the most valuable publicly traded company and has many growth initiatives that can reward long-term investors. Thanks to a 260% gain over the past five years, it’s been a good ride.
Despite the strong run-up over the past year, analysts are still bullish for the tech leader. The current price target implies a 14% upside. Microsoft has even commanded a $600 price target, which suggests the stock can go up by almost 50% from its current price point. Microsoft offers durability and exposure to key industries like cloud computing, gaming, artificial intelligence, and advertising.
Alphabet (GOOG,GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) generates most of its advertising revenue. It’s been hard to complain about the results so far, and 13% year-over-year revenue growth in Q4 2023 suggests the ad recovery is continuing.
Alphabet has been diversifying its business, so it doesn’t rely exclusively on advertising. The company has a small “Other Bets” segment, but growing quickly. However, the company has a vibrant cloud computing business that has become profitable and is still delivering high revenue growth.
Google Cloud will help the firm expand its profit margins. Profitability in this segment was a key driver for the company’s 52% year-over-year net income growth in the quarter. Alphabet only trades at a 26 P/E ratio and has delivered a 144% gain over the past five years. Analysts believe the stock still has an 18% upside at its current price. It is the most undervalued stock among the Magnificent Seven cohort.
On this date of publication, Marc Guberti held long positions in NOW, MSFT, and GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.