From the late 2000s, the IT industry began a key transition from localized hardware infrastructure to cloud computing reliance. Small to medium-sized businesses no longer had to spend resources on maintaining their own IT infrastructure and staff.
Most importantly, cloud computing services offer greater scaling, uptime, and flexibility as the only requirement becomes an internet connection. By early 2023, big tech giants had cornered the global cloud computing market, projected to grow from $446.51 billion in 2022 to $1.6 trillion by 2030.
Amazon’s (NASDAQ: $AMZN) AWS (32%), Microsoft’s (NASDAQ: $MSFT) Azure (23%) and Google’s (NASDAQ: GOOGL) Google (NASDAQ:GOOGL) Cloud (10%) account for 65% of that pie. Yet, as with other IT sectors, Big Tech faces stiff competition. Which cloud computing stocks are vying for the rest of the market pie?
Over the last five days, these three cloud stocks entered double-digit gains territory.
Snowflake
At the end of October, Snowflake Inc (NYSE:SNOW) entered coverage as a growth cloud computing company poised to reap benefits from the AI hype. Specifically, Snowflake is built around warehousing, analyzing, and sharing data. The platform is compatible with Big Tech offerings, and Snowflake’s architecture allows for efficient demand scaling.
This translates to balanced operating costs during both downturns and high consumption, leading to revenue headwinds in both scenarios. Prospects haven’t shifted since. Based on 36 analyst inputs pulled by Nasdaq, SNOW stock remains a “strong buy.” The average SNOW price target is $193.78 vs the current $157.75.
SNOW’s high estimate is $215 vs the low forecast of $160, above the current price. Year-to-date, Snowflake underwent 37 price corrections with moves greater than 5%, settling down to 16.54% yearly gains. Over the week, SNOW stock saw a resurgence, going up 10.28%.
As of the latest Q2 FY24 report, the company reported 37% year-over-year growth to $640.2 million in revenue with an exceedingly favorable 142% net revenue retention rate. From its operating activities, the company delivered $83.2 million in net cash, a 29% year-over-year uptick.
Yet, the latest SNOW rally is largely due to Datadog’s influence.
Datadog
Datadog Inc (NASDAQ:DDOG) is a software-as-a-service (SaaS) company helping businesses monitor and troubleshoot cloud computing applications to the granular code level. The company houses the entire full-stack infrastructure service, so clients only access their monitoring/security/analyzing needs via a web browser.
This puts Datadog in a strong market-signaling position when investors look for cloud demand trends. This happened on November 7th when Datadog released its Q3 2023 earnings. The company exceeded earnings per share (EPS) expectations by a large margin, beating 34 cents consensus at 45 cents EPS.
Datadog’s revenue increased 25% year-over-year to $547.5 million. This showcased that IT enterprises are not cutting down on cloud spending despite tech layoffs. Over the week, DDOG shares went up 28% to $99.81 per share at press time.
Based on 34 analyst inputs pulled by Nasdaq, DDOG is a “strong buy.” The average DDOG price target is $114.52. The high estimate is $133 vs the low forecast of $98.
DigitalOcean Holdings
DigitalOcean Holdings Inc (NYSE:DOCN) received the largest buy pressure out of cloud computing stocks, gaining 31% value over the week to $25.27 per DOCN share. Competing against Big Tech with affordable pricing and ease of use, the SaaS company offers storage, troubleshooting, networking, data streaming, and scaling for high data workloads for apps.
Of note is DigitalOcean’s Managed Kubernetes offering a user-friendly management of cloud-native apps to cost-effectively scale demand and uptime. Like Datadog, DigitalOcean’s Q3 earnings report on November 2nd received a positive market reaction.
The company beat earnings per share consensus (non-GAAP) of $0.40 at $0.44 EPS. The company’s revenue from year-ago increased 16.4% to $177.06 million. DigitalOcean’s net retention rate aligned with analysts’ consensus at 96%. However, its annual run-rate revenue (ARR) exceeded the estimated $690.18 million at $713 million, per Zacks Equity Research.
Unlike the other two cloud stocks, investors should note that DOCN is a high growth stock. Despite a modest net income of $19 million for the quarter, DigitalOcean’s ARR metric points to high growth potential.
Based on 13 analysts polled by Nasdaq, DOCN stock is a “buy”. The average DOCN price target is $30.56 vs the current $25.27. The high estimate is $47 vs the low forecast of $25, aligning with the present price point.
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