The technology sector bore the brunt of several macroeconomic headwinds last year. However, amid the rapid adoption of digitized technology, increased investments in automation, and soaring demand for cloud computing, the tech and software industry is poised to remain resilient in the upcoming times.
Given this backdrop, let us explore some cloud computing stocks, Salesforce, Inc. (CRM), Cisco Systems, Inc. (CSCO), and Zoom Video Communications, Inc. (ZM), which could be ideal buys now, for the reasons mentioned throughout the article.
Cloud computing, used by individuals and organizations worldwide, from online classes to financial transactions, has revolutionized the IT industry, and its impact is only growing.
Switching to cloud computing can help businesses perform better and reduce their operating expenses. The cloud computing landscape is dynamic, and as innovation in the cloud picks up pace, coupled with the availability of innovative technology, worldwide public cloud end-user spending is projected to grow 21.7% to total $597.3 billion in 2023, as per Gartner, Inc. (IT).
Gartner also predicted that by 2026, 75% of organizations will adopt a digital transformation model predicated on cloud as the fundamental underlying platform. The cloud computing market is projected to reach $431.52 billion by 2028, growing at a CAGR of 31.5% between 2023 and 2028.
Therefore, cloud computing stocks CRM, CSCO, and ZM, with strong fundamentals, could be wise portfolio additions now to capitalize on the industry tailwinds.
Salesforce, Inc. (CRM)
CRM is a cloud-based software company that provides customer relationship management technology that brings companies and customers together worldwide.
CRM’s revenue grew at CAGRs of 22.4% and 24.4% over the past three and five years, respectively. In addition, its EBIT grew at a CAGR of 58.9% over the past three years.
CRM’s trailing-12-month gross profit margin of 73.34% is 48.4% higher than the 49.43% industry average. Its trailing-12-month EBITDA margin of 17.34% is 94.5% higher than the 8.92% industry average.
CRM’s total revenues increased 14.4% year-over-year to $8.38 billion during the fiscal fourth quarter that ended January 31, 2023. Its gross profit rose 18.3% year-over-year to $6.29 billion. Also, non-GAAP net income increased 96.4% year-over-year to $1.66 billion, while its non-GAAP net income per share rose 100% year-over-year to $1.68.
For the fiscal year 2024, the company expects its revenue to come between $34.5 billion and $34.7 billion and non-GAAP earnings per share to come in between $7.12 and $7.14.
Analysts expect CRM’s revenue for the fiscal second quarter (ending July 2023) to come in at $8.49 billion, indicating a 10% year-over-year growth. The company’s EPS is expected to increase 43.2% year-over-year to $1.70 for the same quarter. Additionally, CRM topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 22.6% over the past three months to close the last trading session at $204.85. Moreover, it has gained 31.1% over the past six months.
CRM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CRM also has an A grade for Growth and Sentiment and a B for Quality. It is ranked #13 out of 135 stocks in the Software – Application industry.
Click here to access additional ratings for CRM’s Value, Stability, and Momentum.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry worldwide.
On April 24, CSCO unveiled the latest progress towards its vision of the Cisco Security Cloud, a unified, AI-driven, cross-domain security platform. CSCO's new XDR solution and the release of advanced features for Duo MFA should help organizations better protect the integrity of their entire IT ecosystem.
CSCO declared a quarterly dividend of $0.39 per common share, a one-cent increase or up 3%, over the previous quarter's dividend. The dividend was paid to all stockholders on April 26, 2023. Its annual dividend of $1.56 translates to a 3.34% yield on the current share price. Its four-year dividend yield is 3.04%.
In terms of the trailing-12-month net income margin, CSCO’s 21.26% is 789% higher than the 2.39% industry average. Also, its trailing-12-month ROCE, ROTC, and ROTA of 27.92%, 17.06%, and 11.79% are significantly higher than the industry averages of 1.04%, 1.81%, and 0.49%, respectively.
For the fiscal second quarter that ended January 28, 2023, CSCO’s total revenue increased 6.9% year-over-year to $13.59 billion. The company’s non-GAAP operating income rose 1.1% from the prior-year quarter to $4.41 billion. Its non-GAAP net income rose 2.6% year-over-year to $3.64 billion.
In addition, its non-GAAP EPS came in at $0.88, representing a 4.8% increase from the prior-year quarter. CSCO’s revenue grew at a CAGR of 2% over the past five years.
For the fiscal year 2023, the company expects its revenue to grow between 9% and 10.5% year-over-year and non-GAAP EPS to come in between $3.73 and $3.78.
Analysts expect CSCO’s revenue and EPS for the fiscal fourth quarter ending July 2023 to increase 14.1% and 24.7% year-over-year to $14.95 billion and $1.04, respectively. It topped the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 2.3% to close the last trading session at $46.71. Over the past five days, it has gained 2.2%.
CSCO’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The company has an A grade for Quality and a B for Stability. Within the B-rated Technology – Communication/Networking industry, it is ranked #5 out of 51 stocks.
We have also given additional CSCO grades for Growth, Value, Momentum, and Sentiment. Get all CSCO ratings here.
Zoom Video Communications, Inc. (ZM)
ZM is a provider of video communication platforms. The company provides a unified communications and collaboration platform that delivers fundamental changes to how people interact, connecting them through frictionless and secure meetings, phone, chat, content sharing, and more.
On April 15, ZM announced the acquisition of Workvivo in order to expand its platform and provide new ways for customers to keep employees informed, engaged, and connected.
On March 27, 2023, ZM announced the extension of Zoom IQ, a smart companion that encourages collaboration and unlocks people’s potential by summarizing chat threads, organizing ideas, generating material for chats, emails, and whiteboard sessions, preparing meeting agendas, and more.
The company also announced that it would use OpenAI to bolster its unique federated approach to AI based on flexibility.
ZM’s revenue grew at CAGRs of 91.8% and 96.1% over the past three and five years, respectively. In addition, its EBIT grew at a CAGR of 168.4% over the past three years.
ZM’s trailing-12-month levered FCF margin of 37.41% is 433.7% higher than the industry average of 7.01%. Its trailing-12-month ROCE and ROTA of 1.73% and 1.28% are 66.4% and 162.4% higher than the industry averages of 1.04% and 0.49%, respectively.
For the fiscal fourth quarter that ended January 31, 2023, ZM’s revenue came in at $1.12 billion, up 4.3% year-over-year. The company’s gross profit increased 1.2% year-over-year to $823.45 million during the same period. Its total current assets came in at $6.36 billion for the period that ended January 31, 2023, compared to $6.18 billion for the period that ended January 31, 2022.
Analysts expect ZM’s revenue and EPS to increase marginally year-over-year to $1.11 billion and $1.05, respectively, in the fiscal second quarter ending July 2023. It surpassed EPS estimates in all four trailing quarters.
Over the past five days, ZM’s shares have gained 3.6% to close the last trading session at $64.43. It gained 1.4% intraday.
ZM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
ZM has a B grade for Value and Quality. Within the Technology – Services industry, it is ranked #21 out of 79 stocks.
Click here for the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for ZM.
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CRM shares were trading at $202.86 per share on Thursday morning, down $1.99 (-0.97%). Year-to-date, CRM has gained 53.00%, versus a 7.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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