Cloud computing stocks have outperformed the stock market for several years. The industry still has a good runway based on its projected 16.40% compounded annual growth rate until 2029, leaving undervalued cloud stocks to consider.
It’s a scalable industry that offers enticing profit margins once corporations establish themselves as leaders. While investors can choose from many cloud stocks, the tech giants offer reasonable valuations and growth potential. Cloud computing is driving these stocks to new highs, but they have enticing business models beyond cloud computing that are also worth monitoring.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is the largest cloud computing firm. The company’s Amazon Web Services has a dominant presence in the industry and recently reaccelerated. AWS sales increased by 17% year-over-year to reach $25.0 billion. Amazon generated $143.3 billion in the first quarter, a 13% year-over-year improvement.
The stock also has a good reputation for outperforming the market. Shares are up by 24% year-to-date and have jumped by 76% over the past year. Artificial intelligence is strengthening the demand for Amazon’s cloud solutions. However, its e-commerce platform continues to bring in more business. Domestic sales increased by 12% year-over-year, while international sales increased by 10% year-over-year.
Amazon continues to get more efficient and delivers products to consumers at a record-breaking pace. Amazon’s logistics setup isn’t the only thing breaking records. Analysts believe the stock can reach new highs and project an 18% upside. Amazon is rated as a “Strong Buy” among 41 analysts.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is the second largest cloud computing company. Its Azure platform has been driving considerable growth for the firm while driving up profit margins. Microsoft Cloud generated $35.1 billion of the company’s $61.9 billion in Q3 FY24 revenue. Cloud revenue increased by 23% year-over-year, while overall revenue jumped by 17% year-over-year.
Net income outpaced revenue growth and was up by 20% year-over-year. Few companies have the diversification, sales growth and profit margin expansion that Microsoft has. The tech conglomerate offers exposure to cloud computing, artificial intelligence, advertising, gaming, social media and other industries. It has the capital to allocate toward new opportunities as it has done with Copilot.
Analysts believe the stock can gain an additional 20% from current levels. It’s rated as a “Strong Buy” among 33 analysts. Microsoft is the top holding in many mutual funds and ETFs. The stock is up by 31% over the past year and has more than tripled over the past five years.
Alphabet (GOOG,GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is the third largest cloud computing company. Google Cloud has gained market share and achieved revenue growth that outpaced Azure and Amazon Web Services. Google Cloud revenue reached $9.57 billion in Q1 2024. That’s a 28.4% year-over-year improvement.
Overall revenue increased by 15% year-over-year as advertising sales continued to accelerate. Profit margins have improved considerably over the past few quarters, prompting the tech giant to issue its first quarterly dividend. Shareholders will receive $0.20 per share each quarter, and Alphabet will likely grow its dividend meaningfully in the years ahead.
Analysts are optimistic about the stock and believe it has a 13% upside. It’s currently rated as a “Strong Buy” among 38 analysts. The highest price target of $220 per share suggests the stock can gain an additional 31.7%.
After a slow start, Alphabet is up by 21% year-to-date. It’s also gained 190% over the past five years.
On this date of publication, Marc Guberti held long positions in AMZN, MSFT and GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.