3 cloud computing stocks to buy for sky-high returns

Cloud Computing Stocks to Buy - 3 cloud computing stocks to buy for sky-high returns

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All the talk seems to be about AI stocks and not the best cloud computing stocks. Despite the trend of the first group, the second remains quite attractive. Growth rates have been strong and many companies are profitable. Instead of focusing solely on artificial intelligence, investors should also be looking for cloud computing stocks to buy.

Cloud computing has been a key investment theme, but has taken a back seat to artificial intelligence and other trends in recent years. However, it has been a consistent and enduring trend in technology that has generated strong returns for investors over the years.

Many mega-cap companies have hooked up to the cloud, which has helped them propel themselves towards trillion-dollar valuations. While these are some of the best cloud computing stocks, there are still many other smaller names with great potential.

Let’s take a look at some of these sky-high yielding cloud computing stocks.

Snowflake (SNOW)

Snowflake sign and logo at the company's Silicon Valley headquarters.  SNOW Warehouse.

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In the wake of Nvidia (NASDAQ:NVDA extension) explosive earnings reporting, Snowflake (NYSE:TO SNOW) announced what many investors consider a disappointing report. While the company had both an upper and lower lead, the guidance disappointed investors.

Management now expects product revenues to reach about $2.6 billion, below their earlier view and consensus expectations of $2.71 billion.

That said, this company’s growth rate remains robust while its valuation has declined significantly.

At one point, the stock was trading for well over 100 times the revenue with a market capitalization of $130 billion. Now trading close to $150 after earnings, the company has a market cap of less than $50 billion and is trading at 19 times this year’s revenue estimate.

Don’t get me wrong, it’s still expensive based on the retail price. However, the growth rate helps compensate. Analysts expect annual revenue growth of 33% to 39% over the next three years as the company pushes toward profitability. Last quarter, Snowflake generated nearly $300 million in free cash flow, so you can see that there’s potential.

Digital Ocean (DOCN)

A laptop screen displays the DigitalOcean logo (DOCN).

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Snowflake weighs in with a market cap of around $50 billion, while Digital Ocean (NYSE:DOC) is much smaller with a market cap of just $3 billion. I really like this company, as it continues to deliver solid revenue growth while focusing on bottom line.

There are environments to let costs run and focus on growing revenues and there are times, like lately, to grow revenues as best as possible while keeping costs in check. DigitalOcean management has done a great job of controlling costs while generating solid revenue growth.

What does the company do? “DigitalOcean simplifies cloud computing so developers and businesses can spend more time building world-changing software.” It caters to small to medium sized businesses and has generated quite an impressive growth rate over the years so far.

As DigitalOcean’s profitability improves, so does its valuation. As the environment improves, we have to assume that the stock will enjoy further upside.

Data dog (DDOG)

The Datadog (DDOG) logo displayed on a laptop screen.

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Datadog (NASDAQ:DDOG) has a market capitalization of $30 billion. Because of its size and valuation, many would consider it a high-risk, high-reward stock. Still, it’s a name growth investors should keep on their radar.

After teetering on key support and flirting with new lows, the stock is up about 50% in just a few weeks. That move came after the company reported earnings. Notably, the company reported higher earnings and revenue and issued impressive second-quarter and full-year guidance.

Despite the big rally, however, Datadog remains well below its highs, down more than 53% from its all-time high. If stocks were to revisit this level, it would equate to a more than 100% return from current levels.

An interesting thing? Analysts expect revenue growth to accelerate for each of the next three years. Even on a non-GAAP basis, the company is profitable, which is an encouraging development.

As of the date of publication, Bret Kenwell held a long position in DOCN. Opinions expressed in this article are those of the writer, subject to InvestorPlace.com posting guidelines.

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