Cloud-computing stocks have fallen back to Earth. There’s still ample growth opportunity in the cloud names, but their high multiples have left them on the receiving end.
A great number of beaten-up cloud players still have a front-row seat to one of the most lucrative markets out there; some of the plays may be oversold at this critical juncture.
In this piece, we’ll use TipRanks’ Comparison Tool to compare and contrast three cloud stocks to see which, if any, have become cheap relative to their growth stories.
Salesforce (CRM)
Salesforce is a blue-chip cloud giant that’s suffered such a massive blow, falling over 42% from peak to trough. Marc Benioff’s empire was punished severely for its Slack acquisition before the worst of the tech-focused sell-off struck.
Salesforce is a firm that’s been known to conduct M&A to bolster its arsenal of leading software offerings. The company has gone from customer-relationship management (CRM) software top boss to a broader play on the digital transformation of work.
Benioff has the talent to transform Salesforce into a FAANG-like play, as it makes most of its cloud tailwinds. In the meantime, it’s nothing but negativity. Salesforce stock was a big-tech growth darling, but its 119 times trailing earnings multiple made it hard to love as rates rose.
Further, the company may have lacked discipline when it came to big-league M&A. Many still doubt the Slack deal.
Recently, Wedbush downgraded the stock’s price target to $225 from $275. Though revenue growth could decelerate, the company’s focus on margin expansion should be an effort that makes the lofty price-to-earnings multiple more digestible.
My only knock against the company is that it doesn’t have plans to get active on the M&A front now that tech valuations are down by so much. If anything, now is the time to double down on mid-cap tech firms on the CRM radar.
Though some Wall Street analysts are lowering the bar, many continue to stand by their original price targets. I think they’re right to do so. Analysts have a Strong Buy rating on the name, with the average Salesforce price target of $294.63, suggesting 59% upside potential from current levels.
Microsoft (MSFT)
Microsoft was one of few big tech companies that actually impressed this earnings season. With upbeat guidance alongside a better-than-expected result, I think Microsoft could singlehandedly help lift stocks out of their ruts.
In the face of headwinds, Azure continued firing on all cylinders, with just shy of 50% in growth. Across other segments, Microsoft seemed to be faring incredibly well, and that’s thanks to CEO Satya Nadella and company.
Looking ahead, all eyes are on that Activision Blizzard (ATVI) acquisition. Warren Buffett seems to think that the deal will be given the green light. Though Microsoft is the second-largest company in America, it is noteworthy that Microsoft doesn’t have a monopoly in the video game space.
Should the deal get approval, I’d look for Microsoft to make some massive strides in gaming. In a prior piece, I noted that Microsoft could become as dominant a player in gaming as it is in the public cloud. For that reason, it’s hard to ever doubt the stock, even if the rest of the market doesn’t like it.
It’s not a mystery as to why Wall Street analysts still love the stock. Analysts have a Strong Buy rating on the name, with the average Microsoft price target of $360.81, suggesting 24.4% upside from current levels.
Alphabet (GOOGL)
Alphabet clocked in some pretty decent numbers this earnings season. While YouTube came up short, the 44% growth in Google Cloud was tough to ignore.
Though Google needs to pick up its game to catch up to the big two in the public cloud, I do view the company’s focus on uptime and reliability as a key to its growth moving forward. Whether or not Google Cloud can take share from AWS and Azure is another question entirely.
For now, Alphabet has strength across the board, with a YouTube business that may be slowing due to temporary factors. The video platform has staying power, and is likely to only get stronger with time. For now, the economic reopening and more time spent on other platforms are headwinds that may prove temporary.
The stock is among the cheapest of the FAANG group, with a mere 21.2 times trailing earnings multiple.
Alphabet’s latest quarter was far from perfect, but with three incredible pillars powering the stock, I think it’s just a matter of time before the name rises under its own power again.
Analysts have a Strong Buy rating on the name, with the average Alphabet price target of $3,270.47, suggesting 33.8% upside from current levels.
Conclusion
Cloud stocks have been pummelled of late. The following Strong Buy mega-cap players in the cloud space all seem like an intriguing value. At this juncture, Wall Street analysts seem most bullish on CRM stock.
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