4 Cloud Computing Stocks to Invest and Hold Forever

Nov 11, 2021 09:59 AM ET
4 Cloud Computing Stocks to Invest and Hold Forever

Cloud computing is one of the fastest-growing industries as companies transition their workloads from on-premise to the cloud. In a recent report, analysts estimate that the sector grew to more than $360 billion in 2019 and is expected to reach over $1 trillion in 2026. This article will look at some of the best cloud stocks to invest in and hold for a long time.

Salesforce (CRM)

Salesforce is a global cloud company that focuses on customer relations, artificial intelligence, and business intelligence. The company serves tens of thousands of large enterprises like AT&T, 3M, and Zoom Communications. It has been the biggest CRM company in the world for seven consecutive months, according to IDC. Salesforce competes with companies like Microsoft and Oracle. 

In 2020, Salesforce generated more than $21.25 billion in revenue, up from $17 billion in the previous year. In the same period, its profit jumped to more than $4 billion. This growth was partly because of the recent acquisitions the company has made, including Tableau and Vlocity. At the time of writing, the firm is in the process of buying Slack, one of the biggest corporate communications companies in the world. 

Salesforce is a good cloud computing company for several reasons. First, it has a good and clear market share in the industries it operates. Second, it can increase its average revenue per user (ARPU) through its acquisitions. Third, Salesforce has a relatively clean balance sheet with billions of dollars in cash. While it does not pay a dividend now, the company will likely start doing that in the future.

Microsoft (MSFT)

Microsoft is the second-biggest company in the world, with a market capitalization of almost $2 trillion. The company provides hundreds of products to both individuals and companies. At the most basic level, Microsoft is known for its Windows operating system and Microsoft Office suite. 

However, behind the scenes, the company provides many products that many people are not aware of. For example, it provides corporate communication services through Microsoft Teams and Skype. It also provides customer relations management (CRM) services through its Microsoft Dynamics services. Microsoft is also a leader in gaming through its Xbox product. 

Microsoft is the second-biggest provider of cloud services in the world after Amazon. Its Azure product has even become the core part of its business over the years.

Microsoft combines two important benefits to investors. It is both a value company because of the size and stability of its business. It is also a growth company that is having double-digit growth in most of its business lines.

Microsoft’s revenue had grown from more than $91 billion in 2016 to over $143 billion in 2020. At the same time, its profit has doubled, from around $20 billion to surpassing $40 billion. The company is also a generous payer of dividends and is constantly buying back shares.

ServiceNow (NOW)

ServiceNow is a $95 billion cloud computing company that is in the workflow business. The company’s purpose is to make the world of work perform better for people. It achieves this through automating complex manual flows and by creating a good working experience. 

ServiceNow offers its services across several segments like IT workflows, employee workflows, customer workflows, and creator workflows. Some of the key departments it helps are Human resources, IT, Security, and legal services delivery.  According to Gartner, the company has been the market leader in service management tools for six consecutive years. It competes with companies like BMC, Ivanti, Cherwell Software, and EasyVista, among others.

ServiceNow serves thousands of companies globally. Some of the biggest companies that use its platform are Deloitte, Coca-Cola, ICE, ActivTrades, Finastra, Moody’s, and Nomura.

The ServiceNow business has been on a strong growth phase. Its revenue has increased from $1 billion in 2016 to $4.5 billion in 2020. It is also a profitable company with over $100 million in annual profits. 

While this profit is relatively small for a company valued at more than $90 billion, the reason is that the firm is investing loads on growth. For example, its sales and marketing and research and development expenses exceed $2.3 billion and $1 billion, respectively.

ServiceNow has a good market share in its industry, is a free cash flow machine, and has a strong balance sheet, making it a good investment.

Workday (WDAY)

Workday is a leading cloud computing company that provides services to the finance and human resources departments. It offers these services to more than 8,000 customers globally. 

Indeed, it offers its services to almost 50% of all companies on the Fortune 500 list. Most of its services are used by the Chief Financial Officer (CFO), while the others are used by the Chief Information Officer (CIO and Chief Human Resources Officers). 

Workday operates in a highly competitive industry. Some of its biggest competitors are Microsoft, Oracle, UKG, and Automatic Data Processor (ADP). According to Gartner, the company has a substantial market share among some of these companies.

Workday, like the three companies mentioned above, is experiencing fast growth. Its revenue has grown from $1.5 billion in 2016 to $4.3 billion in 2021. It has also continued to grow its market share even as it faces substantial competition.

Summary

The cloud computing industry is a relatively big one, and we have barely scratched the surface. There are hundreds of other good cloud computing companies globally like Amazon, CrowdStrike, Palo Alto Networks, and Oracle. One of the best ways to invest in cloud stocks is through the Global X Cloud Computing ETF and the WisdomTree Cloud Computing Fund.


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