The cloud computing market is growing among organizations investing in digitization and emerging technologies. Given the industry’s solid prospects, investors can consider adding fundamentally sound cloud stocks, ServiceNow (NOW) and Splunk (SPLK), which appear poised to see high demand. These stocks are Buy-rated in our proprietary rating system. Read ahead.
The software industry hasn’t weathered the pandemic-driven disruptions of the past few years, it’s grown. The industry is expected to continue to witness solid demand due to digital adoption, increasing automation and demand for cloud services.
Here are two cloud stocks, ServiceNow, Inc. (Now) and Splunk Inc. (SPLK), which is rated B (Buy) in our ownership POWR Ratings system, can be ideal additions to your portfolio to take advantage of industry tailwinds.
Cloud computing is central to all digital business models, from remote working to online classes and cloud kitchens to financial transactions. According to Gartner’s latest forecast, worldwide end-user spending on public cloud services is predicted to increase. 21.7% will increase $597.30 billion in 2023, up from $491 billion in 2022
Additionally, 75% of organizations are expected to adopt a digital transformation model predicated on the cloud as the underlying underlying platform by 2026. The global cloud computing market is expected to expand. at a compound annual growth rate (CAGR) of 14.1% from 2023 to 2030.
“Organizations today view the cloud as a highly strategic platform for digital transformation, requiring cloud providers to offer more sophisticated capabilities in the competition for digital services,” said Gartner Vice President Analyst Sid Nag.
Let us discuss the above mentioned stocks in detail:
ServiceNow, Inc. (Now)
NOW provides enterprise cloud computing solutions that define, structure, integrate, manage and automate services for enterprises worldwide.
On March 22, NOW announced a major platform expansion with the release of Now Platform Utah, designed to help organizations future-proof their businesses and deliver results faster in the face of continued economic uncertainty.
On February 27, NOW and AT&T Inc. (T) announced a global telecom product to help communications service providers manage 5G and fiber network inventory.
Rohit Batra, vice president and head of telecommunications, media and technology products at NOW, said, “Services and AT&T will work together to redefine the network inventory, and we plan to meet the challenges that communications service providers face now and in the future. We will continue to innovate. In the future.”
NOW’s forward non-GAAP the nail The coefficient of 1.57 is 6.1% lower than the industry average of 1.67.
Now’s trailing-12-month net income margin of 4.49% is 66.8% higher than the industry average of 2.69%. Its trailing 12-month EBITDA margin of 10.88% is 16.9% higher than the 9.30% industry average.
During the fiscal fourth quarter ended December 31, 2022, NOW’s non-GAAP total revenue increased 25.5% year-over-year to $2.03 billion. Its net income rose 476.9% year-over-year to $150 million, while its net income per share rose 469.2% year-over-year to $0.74.
NOW’s revenue is expected to grow 21.2% year-over-year to $2.09 billion during the fiscal first quarter ending March 2023. Its EPS is expected to grow 18.5% year-over-year to $2.05 in the same quarter. Additionally, it has topped the consensus EPS estimate in the last four quarters, which is impressive.
The stock closed the last trading session at $467.69, up 31.3% over the past 6 months.
The current POWR ratings reflect this optimistic outlook. The stock has an overall rating of B, which is Buy in our proprietary rating system. POWR Ratings evaluates stocks by 118 different factors, each with its own weight.
It has an A grade in growth and a B in sentiment and quality. This stock is ranked #10 in the 50-stock list Software – Business industry.
Click here To view POWR ratings (Stability, Momentum and Value).
Splunk Inc. (SPLK)
SPLK develops and markets cloud services and licensed software solutions in the United States and internationally.
On March 21, SPLK announced innovations to Splunk’s unified security and observability platform to help build safer and more resilient digital enterprises. SPLK’s latest innovations include SPLK Mission Control and the general availability of the SPLK Observability Cloud and the SPLK Edge Processor.
With its platform, organizations can integrate, simplify and modernize their workflow and business.
SPLK’s forward non-GAAP PEG multiple of 0.49 is 70.3% lower than the industry average of 1.67.
SPLK’s trailing-12-month gross profit margin of 77.67% is 53.7% higher than the industry average of 50.54%.
SPLK’s total revenue increased 38.8% year-over-year to $1.25 billion in the fiscal fourth quarter ended January 31, 2023. Its gross profit rose 90.9% year-on-year to $1.05 billion, while its net income came in at $268.79. million, compared to a loss of $140.82 million in the year-ago quarter.
Also, its net income per share came in at $1.44, compared to a net loss of $0.88 per share in the year-ago quarter.
SPLK’s revenue is expected to increase 7.8% year over year to $726.79 million during the fiscal first quarter ending April 2023. Additionally, it has topped consensus EPS and revenue estimates in the trailing four quarters.
Shares have gained 16.8% over the past six months to close the last trading session at $91.33.
SPLK’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
SPLK also has a B grade for Growth, Quality and Sentiment. It is ranked #5 of 23 stocks in Software – SAAS industry.
To obtain additional ratings for SPLK’s momentum, stability and value, Click here.
What to do next?
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NOW shares were flat in premarket trading on Friday. Year-to-date, NOW is up 20.45%, compared to an 8.11% gain in the benchmark S&P 500 index over the same period.
About the Author: Nidhi Aggarwal
Nidhi is passionate about capital markets and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor’s degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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