With the Federal Reserve increasing interest rates aggressively, most technology stocks have been hammered this year. The tech-heavy Nasdaq is down 31.5% year-to-date. However, the long-term prospects look bright for cloud-based tech stocks, given the increasing relevance of cloud computing to businesses worldwide.
The cloud computing industry has gained immense traction over the past few years, thanks to spurring demand for cloud solutions and services across various sectors to stay operational from anywhere. The adoption of hybrid working structures in the post-COVID era should keep driving the need for cloud technologies.
Owing to various benefits of cloud computing, such as cost cutting, optimum use of resources, data security, flexibility, and scalability, 81% of all enterprises have a strategy in place or is in the works.
Moreover, the advancements in cloud-based technologies should keep driving the industry’s growth. The global public cloud expenditure is expected to reach approximately $800 billion by 2027, and the market is expected to grow at a 15.7% CAGR to $1.55 trillion by 2030.
Microsoft Corporation (MSFT), Broadcom Inc. (AVGO), and Oracle Corporation (ORCL) are innovating rapidly and are well-positioned to capitalize on the industry’s solid growth prospects. So, we think it could be wise to invest in these stocks now.
Microsoft Corporation (MSFT)
Microsoft is a leading tech company that develops and supports a range of software products, services, devices, and solutions. It operates through three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Its offerings range from Skype, Microsoft Teams, and Office 365 Security and Compliance for Business to Xbox hardware, video games, Xbox content, and services in gaming.
On September 22, 2022, MSFT announced its plans with Planet Labs PBC and The Nature Conservancy to launch the Global Renewables Watch (GRW), a living atlas intended to map and measure all utility-scale solar and wind installations. The first full global inventory is expected to be completed by early 2023.
In the fourth quarter ended June 30, 2022, MSFT’s revenue increased 12.3% year-over-year to $51.86 billion. Its operating income increased 8.4% from the year-ago value to $24.63 billion, while its net income grew marginally year-over-year to $16.74 billion. The company’s EPS came in at $2.23, representing a 2.7% year-over-year improvement.
Analysts expect MSFT’s EPS and revenues to increase 2.3% and 10.1% year-over-year to $2.32 and $49.89 billion in the fiscal first quarter (ending September 30, 2022). It surpassed the consensus EPS estimates in three of the trailing four quarters, which is excellent.
Shares of MSFT have declined 6% over the past three months to close the last trading session at $241.07.
MSFT’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Stability and Quality. In the Software - Business industry, it is ranked #11 of 54 stocks. Click here to see the other ratings of MSFT for Growth, Value, Momentum, and Sentiment.
Broadcom Inc. (AVGO)
AVGO designs, develops and supplies a range of semiconductor devices focusing on complex and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products. It operates through two segments: semiconductor solutions and infrastructure software.
On August 22, 2022, AVGO and Tencent Holdings Limited (TCEHY) announced a strategic partnership to accelerate the adoption of high bandwidth co-packaged optics (CPO) network switches for cloud infrastructure. Under the partnership, AVGO would provide the 25.6-Tbps Humboldt CPO switch device, with TCEHY defining the system architecture to develop hardware and software for field deployment.
For the third quarter that ended July 31, 2022, AVGO’s net revenue increased 24.9% year-over-year to $8.46 billion. Its adjusted EBITDA rose 30.4% year-over-year to $5.38 billion, while its non-GAAP net income came in at $4.24 billion, up 35.7% from its year-ago period. AVGO’s non-GAAP EPS stood at $9.73, indicating a 39.8% year-over-year increase.
The consensus revenue estimate of $8.91 billion for the fiscal fourth quarter (ending October 31, 2022) represents a 20.2% increase from the same period last year. The consensus EPS estimate of $10.3 for the current quarter represents a 31.8% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has lost 5.1% to close the last trading session at $465.96.
AVGO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Quality and a B for Growth and Sentiment. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #4 out of 92 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see AVGO’s ratings for Value, Momentum, and Stability here.
Oracle Corporation (ORCL)
ORCL provides products and services that address all aspects of corporate IT environments, including application, platform, and infrastructure worldwide. The company operates through cloud services and license support, cloud license, and on-premises license, hardware, and services segments.
On September 13, 2022, announced the opening of the first Oracle Cloud Infrastructure (OCI) region in Spain to meet the rapidly-growing demand for enterprise cloud services. Public and private organizations across healthcare, financial services, education, and retail will benefit from OCI's enterprise-grade performance and security, powerful data and analytics, and multi-cloud capabilities.
In the fiscal first quarter that ended August 31, 2022, ORCL’s total revenue increased 17.6% year-over-year to $11.44 billion. The company’s non-GAAP operating income increased 3.3% year-over-year to $4.48 billion. However, its non-GAAP EPS remained flat year-over-year at $1.03.
For the second quarter ending November 30, 2022, ORCL’s revenue is expected to increase 16.1% year-over-year to $12.03 billion. Its EPS for the next quarter ending February 28, 2023, is expected to increase 9.3% from the year-ago period to $1.23. Over the past three months, the stock has declined 8% to close the last trading session at $63.07.
ORCL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
It has a B grade for Growth and Stability. Out of 147 stocks in the Software - Application industry, it is ranked #22. To see the other ratings of ORCL for Value, Momentum, Sentiment, and Quality, click here.
MSFT shares were trading at $235.87 per share on Thursday afternoon, down $5.20 (-2.16%). Year-to-date, MSFT has declined -29.41%, versus a -22.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
The 3 Best Cloud Stocks to Buy Right Now StockNews.com
