Cloud computing has revolutionized how we access and protect data. This technology has helped organizations become more efficient and keep costs low. Additionally, it has paved the way for greater flexibility and scalability in managing information and fostering innovation in the ever-evolving landscape of data management. All of this combined has made cloud computing stocks a profitable arena.
Investors often look for trends that gain a lot of momentum and pick equities that are capitalizing on those trends. Many cloud computing stocks have outperformed the market and delivered high revenue growth. Not every cloud computing company is profitable, but many of the unprofitable ones are narrowing their losses. Investors looking for hidden-gem cloud computing stocks may want to consider these three picks.
ServiceNow (NOW)
ServiceNow (NYSE:NOW) is an information technology company that helps businesses increase their productivity and stay safe from cyber attacks. The company offers artificial intelligence (AI), generative AI, chatbots and other resources to help corporations increase their capabilities and save time. All of the company’s products run on the Now Platform.
Many customers are happy with ServiceNow’s offerings based on the company’s 99% renewal rate. Most clients are raising their annual contract values, including over 1,800 contracts that generate above $1 million in annual recurring revenue. Subscriptions are a major force in the company’s business model, and that segment experienced 25.5% year-over-year (YOY) revenue growth in the fourth quarter of 2023.
The company closed out the year by raising its 2024 subscription revenues and has $8.6 billion in remaining performance obligations. ServiceNow Chairman and CEO Bill McDermott mentioned that generative AI is fueling the company’s revenue growth. If the trend continues, ServiceNow looks poised to deliver meaningful appreciation in the years to come, making it one of the top cloud computing stocks investors should pay attention to.
Datadog (DDOG)
Datadog (NASDAQ:DDOG) makes it easier for businesses to stay on top of their cloud infrastructure and stay protected from hackers. This growth stock has outpaced the market with a 57% gain over the past year. The equity is also up by 259% over the past five years.
Datadog also just delivered another successful quarter that featured 25% YOY revenue growth. GAAP net income per diluted share came in at six cents.
Like many cybersecurity and cloud corporations, Datadog is likely to experience significant profit margin expansion once the company pulls together a few profitable quarters. This development would strengthen the company’s valuation. Long-term investors can accumulate shares at these price levels before net earnings grow at a fast rate.
Datadog continues to innovate its software and break down silos. These initiatives will increase retention rates and make the platform more enticing for prospects who are on the fence. Datadog’s November 2023 report mentions that cloud spend is still in its early stages as a percentage of total information technology spending, giving this company room to grow in the sector.
Cloudflare (NET)
Cloudflare (NYSE:NET) is a cloud cybersecurity and content delivery network services company that runs in the background for many websites. The company has over 189,000 paying customers including more than 30% of the Fortune 1,000.
Cloudflare closed out the fourth quarter in 2023 by reporting 32% YOY revenue growth. Cloudflare signed its largest customer and obtained its largest renewal agreement in the same quarter. Demand is still strong for Cloudflare’s services, and the company’s annual recurring revenue model has been normalizing high revenue growth.
According to the company, it blocks 182 billion cyber threats for its clients each day. The firm also has 48% of its revenue coming from outside of the United States. For many corporations, international segments offer more growth than domestic markets. Cloudflare’s evenly split exposure in both markets can lead to meaningful revenue growth in the years to come, putting it center stage among its fellow cloud computing stocks.
On this date of publication, Marc Guberti held long positions in NET and NOW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.