Technology stocks have taken a beating for more than a year now. This includes shares of SNOW, CRM, and NOW, which look oversold. The more disruptive, innovative, or higher growth the tech stock under question, the larger the punishment that’s been doled out amid this brutal bear market sell-off. Higher interest rates have investors calling for profitability over promises and sales growth. As the economy tests a recession in 2023, stalling growth could contribute to the next leg lower for the formerly-loved tech innovators.
Innovators in the cloud are not immune to economic disturbances. Shares of such growth companies have sold off in the face of what could be the roughest recession since the 2008 Financial Crisis. Though there’s hope for a soft landing, the damage done to the tech sector already seems to suggest a horrific hailstorm is on the horizon.
Such gloomy expectations could accompany a low bar that the best-in-breed cloud stocks could surpass, even as macro headwinds arrive in a hurry.
Simply put, expectations for high-growth tech are the lowest in recent memory. Going against the grain at these depressed valuations could prove wise. Of course, considerable risks remain as volatility and selling pressure move into a new year.
Without further ado, let’s look at three cloud innovators I think are best suited to rise from their 2022 implosions over the years ahead.
Snowflake (NASDAQ:SNOW)
It’s not been easy sledding for shares of the data-housing play. Snowflake stock collapsed by around 70% from peak to trough before rallying modestly. After Thursday’s turbulent session, innovators are leading the charge lower again, with higher-growth companies taking on some serious damage.
Now, Snowflake shareholders are likely already used to daily fluctuations around 5%-10%. Despite the negative sentiment surrounding all things on the cutting edge of tech, I remain bullish on Snowflake despite its rich price-to-sales multiple of 24.6.
The company sunk following its latest quarterly report only to bounce back quickly. The company seems expensive based on traditional valuation metrics. However, Snowflake’s free cash flow could continue to snowball (forgive the pun) from here.
With a 47% revenue growth guide for Fiscal 2024, Snowflake remains one of the growth heavyweights still standing. Once the recession hailstorm passes, look for Snowflake’s growth rate (and multiple) to reaccelerate. Snowflake’s that powerful of a growth firm. It’s a data cloud pioneer that a recession may be unable to keep down for too long.
Some very smart investors, like Altimeter Capital’s Brad Gerstner, agree.
What is the Price Target for SNOW Stock?
Wall Street can’t get enough of Snowflake. The average SNOW stock price target of $189.50 implies 33% gains for the year ahead based on 18 Buys and seven Holds assigned in the past three months.
Salesforce (NASDAQ:CRM)
Salesforce is a cloud behemoth that’s been knocked off the podium. The blue-chip cloud king has crumbled viciously. With CEO Marc Benioff recently parting ways with his second co-CEO, questions linger as to whether Benioff will be able to find the right person to take the reins after his tenure.
Given CRM stock’s dreadful performance, upper-level departures seem more than warranted. With investors punishing the stock over such moves, I think there are reasons to go against the grain. At the end of the day, Salesforce is a cloud juggernaut with some of the best enterprise products out there. Further, its focus on margin enhancements should help it stage a comeback from one of the worst sell-offs in the company’s history.
Slack, Tableau, Mulesoft, and other magnificent technologies are vital to the digital workplace and remain key pillars for Salesforce. While the roadmap from here remains cloudy (forgive the pun), much of the uncertainty surrounding the economy and executive exodus seems baked in at these depths. If anything, CRM stock looks more appealing than no-growth value stocks bid up for their defensive traits.
Amid recent downgrades, the stock trades at just 4.3 times sales.
What is the Price Target for CRM Stock?
Wall Street downgrades have been coming in, but most analysts remain bullish based on 27 Buys and eight Hold ratings. The average CRM stock price target of $197.93 implies 54.3% gains.
ServiceNow (NASDAQ:NOW)
ServiceNow is a digital workflow company that’s also felt the pressure of the fading macro environment. The software juggernaut is down around 44% from its peak.
With a leading product in the ITSM space, few rivals seem talented enough to dethrone ServiceNow. If anything, the company may be able to gain ground as the economy tilts into a recession.
The stock trades at nearly 12 times sales – still expensive for a growth stock, but for such an industry leader, a rich multiple can be expected, even through the worst of times.
CEO Bill McDermott is a magnificent leader whom investors can feel confident in as the firm looks to navigate a potential economic hurricane.
What is the Price Target for NOW Stock?
Wall Street loves ServiceNow, giving it 20 Buy ratings and only one Hold. The average NOW stock price target of $508.71 implies a solid 29% gain from here.
The Takeaway
Cloud stocks may not float higher anytime soon, but they’re still worthy contrarian bets, according to Wall Street. Currently, Wall Street expects the highest upside potential from CRM stock.
