Artificial intelligence (AI) has inundated financial news headlines in 2023. Sometimes we need to get away from the market noise and go back to the basics. In the world of technology equities investing, those basics would be cloud computing stocks.
When investors think of cloud computing stocks, large technology enterprises, such as Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN) quickly come to mind. These companies boast large and insanely profitable cloud computing businesses, but for an investor who is seeking to make a growth investment, smaller and lesser-known cloud computing companies could make for a fruitful bet.
In this list, we will look at three cloud companies that have demonstrated strong share appreciation this year or have the potential to do so.
SAP SE (SAP)
Supply chain management (SCM) has been on the minds of business owners around the world since the start of the Covid-19 pandemic. Global lockdowns and their aftermath caused supply chain bottlenecks, many of which are still not fully resolved today. On top of that, geopolitics is going to have businesses reconsider who their suppliers are, and where their suppliers are located. Therefore, SCM will continue to be a part of the broader macroeconomic discussions for the next 6-12 months at the very least.
SAP SE (NYSE:SAP) specializes in developing a variety of enterprise software products. The company’s core enterprise resource planning cloud product includes both SAP S/4HANA and SAP Digital Manufacturing Cloud tools. The former includes software tools for project management, risk, procurement, manufacturing and supply chain applications. While the latter help customers optimize manufacturing performance by integrating production execution, visibility and analysis. These tools create a platform with the ability to serve customers in a multitude of industries.
With revenues over the last twelve months above $30 billion and with a free cash flow of around $5 billion, SAP has the financial characteristics to continue outperforming. Year-to-date (YTD), SAP’s share price has risen nearly 30%.
Intapp (INTA)
Launched in 2000 Intapp (NASDAQ:INTA) is a provider of industry cloud software solutions to companies in the financial and professional services industries. INTA leverages proprietary AI to help clients originate new deals while effectively managing existing business. Intapp provides services for their clients primarily through two products, DealCloud and OnePlace. DealCloud is a deal and relationship management solution tailored for financial services companies. OnePlace is an all-in-one cloud-based customer relationship management solution for professional services firms, such as consultancies and law practices. It helps them to manage client strategy, deal origination and regulatory compliance.
From a profitability perspective, Intapp has maintained high gross margins but has yet to become net income positive; however, the company has continued to beat profitability expectations. Intapp has also successfully upsold and cross-sold existing clients and expects net revenue retention to come out between 113 to 117% for their fiscal year 2023. Intapp’s shares are up over 60% YTD.
Qualys (QLYS)
Qualys (NASDAQ:QLYS) is probably one of the best examples of a small, growth cloud company with strong fundamentals. The company provides cloud-based information technology (IT), security and compliance solutions in both the United States and internationally. Qualys’ core products include cloud apps boasting numerous end-functions, such as vulnerability management, detection and response and threat protection.
Qualys shines particularly through its strong financial position. Keeping revenue growth in the mid-to-high teens and maintaining gross margins above 78%, the cloud security company has showcased its ability to continuously outperform. On their balance sheet, Qualys has more than $333 million in cash and short-term investments and no debt. Although the company’s share price has only risen a little more than 12% YTD, the fundamentals should not be overlooked and could make QLYS a decent long-term investment.
On the date of publication, Tyrik Torres is a research analyst at Prince Capital, which directly holds a position in Intapp, Inc (INTA). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
