Analysts are bullish on cloud stocks in 2022.
Cloud stocks are thriving as the global economy shifts to doing more and more business online. Gartner estimates that global cloud services spending will grow to at least $482 billion in 2022, compared with $313 billion in 2020. Many cloud service stocks have been under pressure in recent months as investors have rotated out of growth stocks over concerns about rising interest rates. Still, long-term investors see the critical role cloud computing will play in technology trends such as remote work, 5G networks, artificial intelligence and the “internet of things.” Here are seven of the best cloud stocks to buy, according to Bank of America.
Amazon.com Inc. (ticker: AMZN)
Amazon is the global market share leader in cloud infrastructure services. Analyst Justin Post has named Amazon his top stock pick for 2022 among some of the most-well-known tech stocks, which include Meta Platforms Inc. (FB), Netflix Inc. (NFLX) and Alphabet Inc. (GOOG, GOOGL). Amazon’s stock underperformed in 2021 thanks to decelerating e-commerce growth, supply chain disruptions and rising labor costs. However, Post says these headwinds will subside in 2022, and Amazon Web Services’ cloud business, advertising business and third-party commissions will generate at least $70 billion in earnings in 2023. In its fourth-quarter earnings report on Feb. 3, AWS reported a nearly 40% year-over-year revenue increase. The news sent the stock soaring, as the division is one of the company’s most profitable segments. Bank of America has a “buy” rating and a $4,450 price target for AMZN stock, which closed at $2,776.91 on Feb. 3.
Microsoft Corp. (MSFT)
Microsoft’s Azure cloud services business makes the company a market leader in enterprise cloud services and has entrenched Microsoft as the top competitor to Amazon in cloud infrastructure services. Analyst Brad Sills says Microsoft is a “top pick” for 2022, thanks in part to the number of enterprise customers that are migrating mission-critical workloads to Azure. Sills anticipates that increasing Azure scale, ongoing cost savings and Office 365 strength will drive upside to Microsoft’s gross margins, operating margins and earnings in coming quarters. Bank of America has a “buy” rating and a $365 price target for MSFT stock, which closed at $301.25 on Feb. 3.
Alibaba Group Holding Ltd. (BABA)
Alibaba is China’s leading cloud services provider, but it’s not a stock for the faint of heart. In the past year, Alibaba’s share value is down more than 50% amid crackdowns on big tech stocks by the Chinese government and new rigorous accounting standards imposed by U.S. regulators. The Biden administration is probing Alibaba’s cloud business to determine if it poses a U.S. national security risk. Meanwhile, Alibaba reported 33% cloud revenue growth last quarter. Analyst Eddie Leung says Alibaba will remain China’s leading e-commerce and cloud computing platform. Bank of America has a “buy” rating and a $203 price target for BABA stock, which closed at $123.47 on Feb. 3.
Google and YouTube parent company Alphabet is a distant third place in market share among U.S. cloud infrastructure service providers behind Amazon and Microsoft. Post says YouTube monetization should drive revenue growth for Alphabet in 2022, while Google’s cloud segment, eponymously named Google Cloud, should drive earnings growth. He estimates that cloud earnings could add $7 billion in incremental profits from 2021 to 2024, assuming the cloud business reaches 10% margins by 2024. Post says Alphabet investors should watch Cloud margin trends closely. Bank of America has a “buy” rating and a $3,470 price target for GOOGL stock, which closed at $2,861.80 on Feb. 3.
International Business Machines Corp. (IBM)
Enterprise technology leader IBM has struggled to update its legacy business model and generate consistent growth, but its cloud business helped generate impressive fourth-quarter numbers. IBM reported 6.5% year-over-year revenue growth in the fourth quarter, which included 16% revenue growth in IBM’s hybrid cloud. IBM’s consulting segment also reported 13% revenue growth in the fourth quarter. Analyst Wamsi Mohan says IBM’s cloud services and artificial intelligence initiatives should help the company gain information technology spending share in the long term. Bank of America has a “buy” rating and a $162 price target for IBM stock, which closed at $137.78 on Feb. 3.
Salesforce.com Inc. (CRM)
Salesforce.com is the market leader in customer relationship management software and is a top cloud computing services provider. In December, Salesforce reported 21% Service Cloud revenue growth for the third quarter, including 26% marketing and commerce cloud revenue growth. Sills projects Sales Cloud revenue growth of 8.6% in fiscal 2022, 9.5% in fiscal 2023 and 8.5% in fiscal 2023. He also projects Service Cloud revenue growth of more than 15% through at least fiscal 2024. Bank of America has a “buy” rating and a $360 price target for CRM stock, which closed at $212.77 on Feb. 3.
Adobe Inc. (ADBE)
Adobe is a leading provider of creative content software, marketing automation and e-commerce applications. In December, Adobe reported $532 million in Document Cloud revenue, up 29% from the year before. Document Cloud annual recurring revenue grew to $1.93 billion in the quarter. Sills says Adobe’s large Creative Cloud subscriber base, its large distribution channel of sales and marketing personnel, and the breadth and depth of its digital content and experience software portfolio are all reasons to buy the stock. Bank of America has a “buy” rating and a $640 price target for ADBE stock, which closed at $510.83 on Feb. 3.
7 best cloud stocks to buy:
— Amazon.com Inc. (AMZN)
— Microsoft Corp. (MSFT)
— Alibaba Group Holding Ltd. (BABA)
— Alphabet Inc. (GOOG, GOOGL)
— International Business Machines Corp. (IBM)
— Salesforce.com Inc. (CRM)
— Adobe Inc. (ADBE)
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7 Best Cloud Stocks to Buy originally appeared on usnews.com
