In March, I published a piece on the the best exchange-traded funds (ETFs) in cloud computing. For this article, I’m discussing the best cloud computing stocks for 2023.
As I often like to do, I screen ETFs to develop stock ideas. In my previous piece, the funds I selected were the First Trust Cloud Computing ETF (NASDAQ:SKYY), THE WisdomTree Cloud Computing Fund (NASDAQ:WCLD extension) AND ARK Next Generation Internet ETFs (NYSEARCA:ARKW extension).
I pointed to a statistic from McKinsey, which “estimates cloud adoption by Forbes Global 2000 companies could generate $3 trillion in EBITDA by 2030.”
Below I have selected three cloud stocks with high growth potential, one for each ETF. I targeted names with at least 20% revenue growth in each of the past three years, GAAP or even non-GAAP profitability, a market cap of at least $500 million, a bullish analyst rating, and a target price of at least 10% higher than where it is currently on the market.
|VEEV extension||Veeva systems||$177.00|
Hub Spot (NYSE:HUBS) and the 19th largest position of SKYY with a weight of 2%.
HubSpot offers customers cloud-based customer relationship management (CRM) platform to guide their businesses. From small businesses to large enterprises, HubSpot’s various hubs – marketing, sales, support, content management software, and operations – help businesses grow by connecting all of their data.
With more than 167,000 customers worldwide, HubSpot reports three-year annualized revenue growth of 36.9%. In 2022, it reported non-GAAP operating income of $169.1 millionup 44% from 2021. It also increased its customer base by 24% last year.
They’re covering thirty analysts its shares, with 24 giving it a “buy” rating. Their average target price of $452.38 is about 9% higher than where the stock currently trades. This is below the 10% mark I mentioned above after an extra 3% rise in the stock today. Therefore, investors may want to wait for a pullback before entering.
For 2023, management expects revenue of at least $2.05 billion, with non-GAAP operating income of $250 million at the midpoint of its leadership. This would represent growth of 18.5% and 48% respectively.
Veeva Systems (VEEVA)
Veeva systems (NYSE:VEEV extension) and the 10th largest position of WCLD with a weight of 1.6%. Veeva is also SKKY’s 38th largest position.
i tough discussed Veeva Systems in June 2020. At the time, I liked the cloud-based software provider for the life sciences industry due to its free cash flow generation and on-balance sheet liquidity.
Over the past three years, Veeva has reported annual revenue and operating income growth of 25% and 17.1%, respectively. Generated free cash flow of $780.5 million in the last 12 months.
There are 29 analysts hedging VEEV shares, with 17 giving it an “overweight” or “buy” rating. Their average target price of $205.88 is 16% higher than it currently trades.
For its most recent fiscal year, which ended January 31, Veeva reported GAAP net income of $487.7 million on revenue of $2.16 billion. It ended the year with 1,388 customers, up 14%. In fiscal 2024, management expects revenue of at least $2.35 billion, with non-GAAP operating income of $800 million. This would represent growth of 8.8% and 64% respectively.
Nvidia (NASDAQ:NVDA extension) and the 18th largest position of ARKW, managed by renowned investor Cathie Wood, with a weighting of 1.5%.
Chief Investment Officer of Nvidia (CEO) Jensen Huang is one of the best leaders in the technology sector. Its current chip designer push towards artificial intelligence (TO THE) will continue to pay dividends for years.
In March, by InvestorPlace Louis Navellier wrote:
What really caught investors’ attention, though, were some statements made by Nvidia CEO Jensen Huang. He boldly stated, “AI is at an inflection point, preparing for broad adoption that will reach every industry.”
Huang assured that his company is “ready to help customers leverage breakthroughs in generative AI and large-scale language models.”
Over the past three years, Nvidia has grown its revenue and operating income by 35.2% and 25.1%, respectively, year over year, with free cash flow of $3.8 billion over the past 12 months.
There are 47 analysts hedging its stock, with 34 giving it an “overweight” or “buy” rating. Their average target price of $300 is 11% higher than where the stock currently trades.
As of publication date, Will Ashworth did not hold (either directly or indirectly) positions in the securities referred to in this article. The opinions expressed in this article are those of the writer, without prejudice to the art InvestorPlace.com Guidelines for publication.
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