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5 Cloud Stocks Set to Rally in the Second Half of 2020

Sreoshi Bera

Digitalization isn’t new but the pandemic has surely bumped up corporate spending on cloud computing, digital transformation, big data analytics and AI. The coronavirus outbreak drove the remote working trend, forcing business to reset priorities.

This is surely fuelling the top line of software companies, especially, cloud stocks as more and more companies continue to shift from on-premise software to applications on the cloud.

Work-and-Play-From-Home Trend Boosts Cloud Stocks

Even as the pandemic has halted several business operations, cloud stocks have been skyrocketing since the outbreak. The adaptation of cloud-based services is nowgrowing faster as people rely more on their products and services to work and play from home.

Technology giants like Microsoft are focusing more on cloud computing and software-as-a-service. This is because companies are looking for more administrative, workflow and collaboration tools to integrate their remote working employees and create a virtual office-like environment. In fact, bigger companies require more sophisticated cloud architecture to shift their data and software applications online.

So far this year, Tencent Holdings Limited TCEHY has hired more than 3,000 employees for its cloud division. The company is taking aggressive measures to position its cloud business and beat its rival Alibaba Group in capturing the China cloud market. The additional employees will help the company improve its cloud servers designed in-house and help speed up cloud and smart city projects.

The gaming and software giant announced in May that it will invest $70 billion over the next five years in building technology infrastructure, especially cloud computing.

The digital-first operation has also boosted chipmakers like Micron Technology. In fact, with the surge in demand for cloud computing, 5G expansion and new generation of gaming consoles and personal computing devices, these chip makers have a radiant future.

In its recent earnings call, Micron reported that sales of memory semiconductor for data centers were up double-digit percentages compared to the previous quarter. Increased e-commerce, remote working, streaming and other cloud-based activities have driven usage and storage capacity requirement over the past few months.

Per a Bandera County Courier report, with the impact of COVID-19, the Global Cloud Computing market is estimated to rise from $233 billion in 2019 to $295 billion by 2021, at a CAGR of 12.5%.

Growing Demand of Cybersecurity

With the rise in remote working, cybersecurity has been a major concern for all businesses.  Several companies have spent the last couple of months looking for better means to deploy and manage the security risks surrounding remote working.

Earlier in June, Microsoft reported that malware attacks abused the COVID-19 theme. Attackers sent emails carrying malicious file attachments and emails containing links that redirect users to phishing sites or malware downloads. The tech giant believes that the number of attacks has gone down but is still higher than that reported during the start in early February.

Per research by IBM, for most employees remote working has been a completely new experience. In fact, more than 80% of the respondents said that they have rarely worked from home or never worked remotely before the coronavirus outbreak. Additionally, more than half of the remote working employees surveyed said that they still do not have security policies to guide them while working remotely. Security threats area major concern for employees in their new home-office settings.

Another concern at present is that more than half employees are using their personal laptops or computers for work and 61% of them said that their employer has not provided tools to properly secure these devices.

Notably, VPN allows users to connect to the office network from their personal device but that makes it highly vulnerable. Hence, employees also require cloud security that consists of a set of policies, controls, procedures and technologies that work together to protect cloud-based systems, data, and infrastructure. This part of security deals in authenticating access to filtering traffic.

Our Top Picks

Given the current scenario, it looks like the remote working trend is here to stay, and cybersecurity plays a major role hereby protecting employees and companies working on cloud computing platforms. We have shortlisted five cloud stocks that will continue to rally in the second half of 2020.

Zoom Video Communications, Inc. ZM provides a video-first communications platform. Its enterprise cloud phone system provides secure call routing, call queuing, call detail reports, call recording, call quality monitoring and much more. The company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Internet - Software industry’s estimated earnings growth of 4.5%.

The Zacks Consensus Estimate for its current-year earnings has climbed more than 100% over the past 60 days. Zoom Video sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tencent Holdings Limitedprovides value-added services (VAS) and Internet advertising services along with online games and social network services, FinTech and cloud services. The company’s expected earnings growth rate for the current year is 24.5% against the Zacks Internet - Services industry’s estimated earnings decline of 1.5%.

The Zacks Consensus Estimate for its current-year earnings has climbed 8.8% over the past 60 days. Tencent sports a Zacks Rank #1.

Fortinet, Inc. FTNT provides broad, integrated and automated cybersecurity solutions. The company’s expected earnings growth rate for the current year is 13.7% against the Zacks Security industry’s estimated earnings decline of 15.1%.

The Zacks Consensus Estimate for its current-year earnings has climbed 9.3% over the past 60 days. Fortinet sports a Zacks Rank #1.

Okta, Inc. OKTA offers Okta Identity Cloud, a platform that offers a suite of products to manage and secure identities. The company’s expected earnings growth rate for the current quarter is 60% against the Zacks Internet - Software and Services industry’s estimated earnings decline of 69.4%.

The Zacks Consensus Estimate for its current-year earnings has climbed 45.7% over the past 60 days. Okta carries a Zacks Rank #2 (Buy).

Amazon.com, Inc. AMZN provides compute, storage, database and other cloud-based services through AWS platform. The company’s expected earnings growth rate for the next quarter is 18.4% against the Zacks Internet - Commerce industry’s estimated earnings decline of 44.6%.

The Zacks Consensus Estimate for its current-year earnings has climbed 1.7% over the past 60 days. Amazon carries a Zacks Rank #2.

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