3 Top Cloud Computing Stocks to Buy Right Now

Cristopher Centers

Cloud stocks have been a bright spot during the coronavirus pandemic. Tech researcher Gartner expects global spending on public cloud computing — not including private data center cloud computing — to grow 6% in 2020 and exceed $250 billion before growing to over $360 billion in annual spending by 2022.  […]

Cloud stocks have been a bright spot during the coronavirus pandemic. Tech researcher Gartner expects global spending on public cloud computing — not including private data center cloud computing — to grow 6% in 2020 and exceed $250 billion before growing to over $360 billion in annual spending by 2022. 



diagram: 3 Top Cloud Computing Stocks to Buy Right Now


© Provided by The Motley Fool
3 Top Cloud Computing Stocks to Buy Right Now

Clearly, the cloud is a promising place to invest and not just now but over the next few years as organizations migrate away from old IT operating models. Three lesser-known cloud stocks to buy right now are LiveRamp (NYSE: RAMP), Fortinet (NASDAQ: FTNT), and Intel (NASDAQ: INTC)



An illustrated cloud surrounded by computers, illustrating cloud computing.


© Getty Images
An illustrated cloud surrounded by computers, illustrating cloud computing.

A neutral platform for digital data

Use of data and privacy concerns have been at the heart of big tech criticism for years, and antitrust probes into firms like Amazon and Alphabet — two of the largest public cloud providers out there — could partially address some of these issues. Whatever the antitrust inquiry outcome, though, increased scrutiny over digital data practices could work in favor of LiveRamp. 

Loading...

Load Error

Fellow Fool.com contributor Jon Quast put this stock on my radar back in the spring, and since then, it has continued to rally as effects from the pandemic have slowly eased. LiveRamp pools together anonymous customer data from various partners, creating a neutral network of consumer behavior from which organizations can make product development and marketing decisions. If data practices get clamped down on, LiveRamp’s benign platform for monetizing customer information could get a big bump. 

Not that LiveRamp’s fortunes are completely dependent on this outcome. Even though many of its brick-and-mortar store partners have struggled this year amid COVID-19 and advertising activity has taken a hit, the company remains in growth mode. Fiscal first quarter revenue (for the three months ended June 30, encompassing the worst of the lockdowns) grew 21% from the prior year to $99.4 million, and 83% of the revenue was recurring subscription sales — the variety that makes the cloud computing business model so lucrative. And though LiveRamp posted negative free cash flow of $24.4 million in the period, gross margin on services rendered was 65.3% (up from 55.9% last year). There’s promise this will someday be a highly profitable tech firm. 

At the end of June, LiveRamp had a massive cash and equivalents balance of $649.9 million and no debt. This well-funded and growing connected data platform looks like a reasonable value to me at just 9.2 times trailing 12-month revenue. I plan on buying more LiveRamp stock this month. 

The future of cybersecurity: Already here all along?

The advent of the cloud (and the remote work boom it’s supporting this year) has turned cybersecurity on its head. In recent years, incumbent firms have fallen behind and look woefully unequipped to protect their customers from online threats. Other firms from the old guard have adopted spend-happy strategies to remain relevant. Meanwhile, many cloud native upstarts like CrowdStrike have been picking up the slack, growing by leaps and bounds. But Fortinet is a unique firm from an old era of security. It has mostly developed its next-gen services in-house, has remained in double-digit percentage growth mode while doing so, and has all the while stayed very profitable.

Specifically, Fortinet’s revenue increased 18% year-over-year in the second quarter to $615.5 million. Like LiveRamp, it was slightly brought down by effects from the pandemic as product sales (including firewall hardware, which makes up just over one-third of revenue) were far slower than cloud subscription offerings. Free cash flow increased 22% to $216.1 million, good for an enviable free-cash-flow margin of 35%. And at the midpoint of guidance, Fortinet expects third-quarter revenue to increase another 16% year over year, and operating profits should remain at a robust level in at least the mid-20% range. 

For all the hubbub about rapidly shifting cybersecurity needs, Fortinet often gets ignored for no good reason. It’s still growing faster organically than the industry average, which means it’s mopping up market share, and all the while taking a disciplined approach to spending. As a result, this industry leader had $1.53 billion in cash and equivalents on hand at the end of June, plus another $100 million in liquid long-term investments and zero debt. Clearly, this security incumbent is feeling little to no ill effects from rapid change and disruption from its smaller peers. 

Trading at 24.2 times trailing 12-month free cash flow, this cybersecurity stock remains my favorite, even if CrowdStrike and other cloud-native disruptors are getting most of the attention right now. 

An underrated cloud hardware play

As with all things tech, cloud computing really starts with the hardware. And in that sandbox, Intel still reigns supreme with a massive $79.0 billion in revenue over the past year and a massive slice of the global semiconductor pie. “Chipzilla” isn’t going to roll over easily.

Granted, there are issues here. Intel is one of a few chip companies that still handles design and manufacture in-house, and in the latter department, it has fallen behind the technological prowess of fabrication titan Taiwan Semiconductor. Intel also has many firms gunning for its business. Chief among them is NVIDIA, which recently unveiled new data center chips that could cause Intel some real trouble in the next few years. 

In spite of all its imperfections, though, the pessimism surrounding Intel looks overdone to me. Let’s not forget this is still a very lucrative business that generates free cash flow margins on its business of nearly 30%. And while this is no lean machine anymore with total debt of $38.3 billion, it’s a manageable sum that is offset by cash and liquid investments on hand of $25.8 billion. Indeed, Intel isn’t going anywhere anytime soon. 

But it isn’t a high-flying name anymore, and thus gets overlooked by many cloud investors. But management is still forecasting about 5% revenue growth this year over fiscal 2019. And with cloud computing a rising tide that could float many boats, there is more than enough room for Intel to right its recent wrongs and maintain its slow-and-steady trajectory. With a valuation of 10.3 times trailing 12-month free cash flow, this hardware stock looks too cheap to ignore.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo owns shares of Alphabet (C shares), CrowdStrike Holdings, Inc., Fortinet, LiveRamp, and NVIDIA. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, CrowdStrike Holdings, Inc., NVIDIA, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Fortinet, Gartner, and Intel and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

SPONSORED:

10 stocks we like better than Fortinet

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Fortinet wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of September 24, 2020

 

Continue Reading
Next Post

neet exam news: NEET UG 2020 application form correction allowed once again, check details here

NEW DELHI: The National Testing Agency (NTA) has once again opened the application form correction window for candidates who appeared in the NEET UG 2020 on Sunday, September 13, 2020, from 2.00 PM to 5.00 PM. The corrections in the particulars in the Online Application Form of the NEET UG […]