The cloud has completely changed how companies access and manage their applications and data. Instead of relying on locally hosted services, there has been a shift to cloud hosting. Cloud computing stocks are critical in providing the necessary infrastructure and services.
Today, this transition from on-premises to the cloud is in its early innings and these stocks are significant beneficiaries. According to Gartner, cloud spending will continue to grow due to IT modernization and cost optimization efforts. In 2023, they expect public cloud spending to grow by 20.7%.
Businesses have been migrating to the cloud for several reasons. First, the cloud provides greater IT resiliency. Secondly, it drives cost optimization of IT infrastructure, maintenance and application development. Thirdly, the cloud drives business value by enhancing product development and providing scalable computing power.
As organizations move their infrastructure, business processes, and applications to the cloud they are seeing immediate results. McKinsey notes that companies that adopt cloud computing are more agile and serve their customers better. They expect that cloud adoption will generate over $3 trillion in EBITDA value by 2030.
Today, businesses are using cloud platforms to run major business processes and digitize their core operations. As migration of back-office workloads to the cloud accelerates, these cloud computing stocks to buy will be winners.
Cloud Computing Stocks to Buy: Amazon (AMZN)
While Amazon (NASDAQ:AMZN) is famous for its e-commerce business, its cloud services business is one of its most profitable segments. Amazon Web Services is the leading cloud service provider with a market share of 32% as of Q2 2023. Given the dominance of AWS, Amazon is one of the best cloud computing stocks to buy.
Millions of businesses globally, including large enterprises like Netflix (NASDAQ:NFLX), rely on AWS. Using the service, they access storage and compute resources from any location. Overall, AWS offers more than 175 services, including various security, database and management tools over the cloud.
AWS pioneered on-demand cloud services, launching the service in 2002. Today, it’s a juggernaut with net sales of $87.9 billion over the last 12 trailing months. What’s more, it’s Amazon’s most profitable segment. Over the same period, it generated over $22.7 billion in operating income.
The growth in AWS is still impressive and revenues grew 12% year-over-year in Q3 fiscal year 2023. CEO Andy Jassy sees more opportunities ahead since 90% of the global IT spend is still on-premises. This spending will shift to the cloud over the next decade, benefiting Amazon.
AWS continues to have the best operating performance and ecosystem of partners. Additionally, the service is leveraging generative AI to transform the customer experience. Going forward, it will be integral to customers’ AI strategy, making Amazon a must-own stock.
Salesforce (CRM)
Salesforce (NYSE:CRM) is the leading cloud customer relationship management platform. Its platform unites sales, service, marketing, commerce and IT functions and draws customer data from systems, apps and devices. This allows a comprehensive view of the customer with valuable insights to drive higher engagement.
Large enterprises consider Salesforce a critical tool for their interactions with customers. They use products such as Tableau, Slack, MuleSoft, the Data Cloud, Sales Cloud and the Service Cloud for customer service.
Today, Salesforce is the third-largest enterprise software company by revenue. Yet, the company sees opportunity in bringing together CRM, data, artificial intelligence and trust. It’s the number one AI CRM and that is supporting customer growth, as recent results showed. For instance, in Q3 FY2024, it saw deals more than $1 million grow 80% YOY.
Management sees a total addressable market worth $290 billion. Salesforce expects to capture a significant piece of this pie by capitalizing on its land and expand strategy. Considering the solid demand outlook, they hope to achieve $50 billion in revenue by fiscal 2026.
On the profits front, the firm has been improving after activist pressure. In Q3 FY2024 non-GAAP operating margin was 31.2%, a material increase from 22.7% in the prior year’s quarter. Still, there is room for improvement, considering that peer Adobe (NASDAQ:ADBE) has consistently achieved margins above 45%.
For fiscal 2024, management expects 11% revenue growth YOY. Furthermore, earnings will improve with additional productivity gains and cost discipline. Indeed, Salesforce is positioned for the AI revolution and is a top cloud computing stock.
Workday (WDAY)
Some of the departments seeing significant digitization are finance and human resources. Workday (NASDAQ:WDAY) provides enterprise cloud applications that meet the needs of these departments. Considering that more than 50% of Fortune 500 companies use the platform, it is one of the best cloud computing stocks to buy.
Notably, Workday boasts more than 65 million users on its platform across finance and human capital management. According to Gartner, the company held a 21% market share in ERP worldwide software as a service (SaaS) at the end of 2022. That’s the largest share, highlighting the high customer loyalty with a 100% net revenue retention rate.
According to Mizuho analyst Siti Panigrahi, Workday is well-positioned over the long term. There are multiple growth opportunities through the finance platform uptake and international expansion. The midmarket is another growth opportunity for one of the best cloud computing stocks.
Workday is benefiting from the digitization of back-office functions and their migration to the cloud. On the financial analyst day, management highlighted a $142 billion market opportunity, $58 billion in HCM and $84 billion in finance. In line with this view, they expect 17-19% annual subscription revenue growth over the next three years.
Parallel to these growth targets, the firm is focused on profitable growth. Management expects to achieve 25% non-GAAP operating margins through scale and operating efficiencies. What’s more, they expect 25% free cash flow margins. Workday will unlock growth through international expansion, growth in finance, AI and more partnerships.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
