In today’s tech-driven world, cloud computing has become the backbone of innovation, especially with the rise of artificial intelligence. Companies are pouring billions into this sector, and it's easy to see why: cloud services provide the essential infrastructure for AI systems, helping businesses save millions on data center costs.
With tech giants racing to build new data centers to meet soaring demand, it's clear that the cloud computing landscape is buzzing with potential.
Given this backdrop, investors looking for long-term gains could consider adding these fundamentally sound cloud computing stocks: Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN), and International Business Machines Corporation (IBM).
Despite recent market turbulence, such as the impact of a hawkish shift from the Bank of Japan, the cloud computing sector is poised for impressive long-term gains. The market is expected to expand at a CAGR of 21.2% from 2024 to 2030, driven by advancements in AI and increasing demand for cloud services.
With trends like hybrid cloud solutions and advancements in AI pushing the industry forward, there’s no denying that cloud computing is a hotbed for future growth. So, if you’re looking to capitalize on this trend, investing in GOOGL, AMZN, and IBM could help garner significant gains.
With this in mind, let’s examine the fundamental aspects of the above-mentioned stocks in detail:
Alphabet Inc. (GOOGL)
Valued at $2.01 trillion, GOOGL is the powerhouse behind a spectrum of tech innovations and various products and platforms worldwide. It operates through the Google Services; Google Cloud; and Other Bets segments.
On May 2, 2024, GOOGL and MongoDB, Inc. (MDB) collaborated to enhance Gemini Code Assist to deliver improved application development and modernization recommendations on MDB’s leading developer data platform.
This platform, trusted by millions of developers and thousands of customers for critical business applications, will benefit from Gemini Code Assist's ability to provide developers with valuable insights on MongoDB code, documentation, and best practices. This partnership is set to accelerate feature prototyping and streamline application development.
For the fiscal second quarter, which ended on June 30, 2024, GOOGL’s total revenues increased 13.5% year-over-year to $84.74 billion, while its operating income rose 25.5% from the year-ago value to $27.43 billion. The company’s net income amounted to $23.62 billion and $1.89 per share, up 28.6% and 31.3% from the prior-year quarter, respectively.
The consensus revenue estimate of $86.26 billion for the fiscal third quarter (ending September 2024) represents a 12.5% increase year-over-year. The consensus EPS estimate of $1.84 for the ongoing quarter indicates an 18.9% improvement year-over-year. The company has an excellent surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 22.9%, closing the last trading session at $162.03. It has also gained 15.9% year-to-date.
GOOGL’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GOOGL has an A grade for Sentiment and a B for Stability and Quality. It is ranked #11 out of 51 stocks in the B-rated Internet industry. Click here to see the additional ratings for GOOGL (Growth, Value, and Momentum).
Amazon.com, Inc. (AMZN)
AMZN is a global giant in the retail sector, offering consumer products, advertising, and subscription services through online and physical stores across North America and international markets. The company has a market cap of $1.74 trillion and operates through three segments: North America; International; and Amazon Web Services (AWS).
On July 25, Amazon Web Services, Inc. (AWS) announced a strategic collaboration with GE HealthCare Technologies Inc. (GEHC) to develop purpose-built foundation models and generative artificial intelligence (AI) applications to improve medical diagnostics and patient care. GEHC has chosen AWS as its cloud provider, leveraging AI services to create advanced models that could revolutionize healthcare.
This collaboration could significantly enhance AWS's presence in the healthcare sector, boosting AMZN's influence in a rapidly growing market by driving innovation and improving patient outcomes.
On July 11, AWS and Workday Inc. (WDAY) extended their partnership to enhance organizational productivity, decision-making, and the development of generative AI solutions. The collaboration focuses on innovating new customer experiences and accelerating cloud transformation through joint AI initiatives.
For the second quarter of 2024, which ended on June 30, AMZN's total net sales increased 10.1% year-over-year to $147.98 billion, while the operating income stood at $14.67 billion, up 91% year-over-year. Its net income amounted to $13.48 billion, representing an increase of 99.8% from the last year. Also, the company’s EPS for the quarter increased 93.8% year-over-year to $1.26.
Building on this quarter's momentum, the company updated its financial guidance for the third quarter of 2024. AMZN anticipates net sales between $154 billion and $158.50 billion, with 8% to 11% growth. It also forecasts operating income from $11.50 billion to $15 million, compared to $11.20 billion in the third quarter of 2023.
Street expects AMZN’s revenue and EPS for the fiscal third quarter (ending September 2024) to increase 10% and 20.2% year-over-year to $157.37 billion and $1.13, respectively. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Shares of AMZN have gained 16.7% over the past nine months to close the last trading session at $165.80.
AMZN’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Momentum, Sentiment, and Quality. Within the Internet industry, it is ranked #12 out of 51 stocks. Click here to see AMZN’s ratings for Growth, Value, and Stability.
International Business Machines Corporation (IBM)
IBM, with a market cap of $176.99 billion, is engaged in addressing the hybrid cloud and artificial intelligence (AI) opportunity with a platform-centric approach focused on providing client value through a combination of technology and business expertise. It operates through four segments: Software; Consulting; Infrastructure; and Financing.
On August 5, IBM unveiled a new generative AI-powered cybersecurity assistant to enhance its clients' threat detection and response services. Built on IBM's watsonx data and AI platform, the new IBM Consulting Cybersecurity Assistant is designed to accelerate and improve the identification, investigation, and response to critical security threats.
Management believes this innovation will reduce the need for manual investigations and operational tasks, enabling security analysts to respond more proactively and precisely to threats and ultimately strengthening clients' overall security posture.
On July 23, IBM and ASMPT announced an extension of their partnership to advance chiplet packaging technologies. Under this renewed agreement, the companies will collaborate on advancing thermocompression and hybrid bonding techniques for chiplet packages, leveraging ASMPT’s latest Firebird TCB and Lithobolt hybrid bonding tools.
This technology breaks down system-on-chips (SOCs) into smaller, modular chipsets, offering potential benefits that can include improved energy efficiency, faster system development cycle time, and reduced costs.
In the fiscal second quarter that ended on June 30, 2024, IBM’s total revenue increased 2% year-over-year to $15.77 billion. The company reported a gross profit of $8.95 billion, indicating a 5.3% growth from the prior year quarter.
IBM’s non-GAAP income from continuing operations came in at $2.27 billion, up 13.6% year-over-year, while its non-GAAP EPS grew 11.5% from the prior-year quarter to $2.43. In addition, the company’s free cash flow rose 24.3% from the year-ago value to $2.61 billion.
Analysts expect IBM’s revenue for the third quarter (ending September 2024) to grow 2.1% year-over-year to $15.07 billion, while its EPS for the same period is expected to increase marginally year-over-year to $2.24. Moreover, the company topped the EPS estimates in each of the trailing four quarters, which is promising.
IBM shares have surged 30.9% over the past year and 28.9% over the past nine months to close the last trading session at $192.61.
It’s no surprise that IBM has an overall rating of B, which translates to a Buy in our POWR Ratings system. IBM has a Quality grade of B. In the 77-stock Technology - Services industry, it is ranked #15.
Beyond what is stated above, we’ve also rated IBM for Growth, Value, Momentum, Stability, and Sentiment. Get all IBM ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
GOOGL shares were trading at $161.39 per share on Friday afternoon, down $0.64 (-0.39%). Year-to-date, GOOGL has gained 15.67%, versus a 13.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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