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5 Stocks to Make the Most of the Cloud Infrastructure Boom

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The need for cloud computing has been on the rise over the last few years, with the coronavirus pandemic accelerating its adoption across the globe. The technology is not only helping companies wade through the pandemic-led slump by allowing employees to work from remote locations but also creating new jobs at an unprecedented rate. Cloud bigwigs like Amazon, Google and Microsoft Corporation (MSFT - Free Report) are investing heavily in building vast infrastructure and useful services and constantly working on improving performance and reliability.

Cloud Infrastructure Key to 5G Growth

The growth of 5G and cloud infrastructure goes hand in hand, in terms of distribution and computation, and storage capabilities. On-premises and edge data centers is closing the gap between resource-constrained, low-latency devices and distant cloud data centers. This in turn is driving the need for heterogeneous and distributed computing architectures, where the cloud comes to play.

Additionally, operator planning and deploying 5G core networks need to make the right choice between infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS). IaaS provides computation, network, and storage resources in their own data center and the vendor needs to only provide the infrastructure software and 5G core applications. And in case of PaaS, the cloud infrastructure software is provided (operating system, runtime, orchestration) on which the vendor's 5G core applications can be easily deployed. PaaS provides the overall development framework; hence, maintenance and enhancement are easier. However, there are attached problems like increased pricing at a larger scale and low level of control. Meanwhile, IaaS does not provide the overall development framework but only the individual infrastructure required. This leaves administration and development on the operator, requiring advanced internal skills and capabilities.

Irrespective of what the operator chooses, cloud infrastructure remains the core of 5G deployment and will continue to boost the space. According to a MarketsandMarkets Research report, the global cloud infrastructure services market will rise from $73.0 billion in 2019 to $166.6 billion by 2024, at a CAGR of 18%. The flexible costs, scalability and efficiency of the cloud have encouraged businesses to transition into the digital world.

M&A and Deals Boosting the Space

Initial public offerings (IPO) and mergers continue to boost the cloud. On Apr 21, UiPath, a global software company for robotic process automation, made its debut on the NYSE and rose 23%, bringing in $1.34 billion. Last year, cloud database vendor Snowflake raised $3.9 billion in its IPO in September 2020 and Qualtrics, which pulled in $1.78 billion this January.

Dish Network announced a partnership with Amazon Web Services (“AWS”) to deploy a 5G network on the cloud provider’s infrastructure on Apr 21. The company plans to become “the first standalone, cloud-based 5G Open Radio Access Network in the United States.” This deal will also serve as an example that 5G networks can run on cloud rather than in data centers with special-purpose infrastructure for other telecommunications providers. AT&T already uses Microsoft’s Azure cloud, while AWS works with Verizon.

5 Stocks to Buy

Given the strong prospects that cloud infrastructure holds, we have shortlisted five stocks that are engaged in cloud infrastructure and related services. All the stocks hold a Zacks Rank #2 (Buy) and are poised to grow. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft develops, licenses and supports software, services, devices and solutions. Azure is Microsoft's big enterprise cloud that is offered as a PaaS and IaaS service. The cloud division generated $13.4 billion in 2020 for the company.

The company’s expected earnings growth rate for the current year is nearly 28% compared with the Zacks Computer - Software industry’s projected earnings growth of 1.6%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 0.4% upward over the past 60 days.

Hewlett Packard Enterprise Company (HPE - Free Report) provides solutions that allow customers to capture, analyze and act upon data seamlessly. It offers edge-to-cloud platform as-a-service that helps organizations accelerate outcomes by unlocking value from all of their data, everywhere.

The company’s expected earnings growth rate for the current year is 35.6% compared with the Zacks Computer - Integrated Systems industry’s projected earnings growth of 4.8%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 12.3% upward over the past 60 days.

Cisco Systems, Inc. (CSCO - Free Report) designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry. Cisco Stealthwatch Cloud improves security and incident response across the distributed network. The company that belongs to the Zacks Computer - Networkingindustry has an expected earnings growth rate of 6.3% for the next quarter. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 1.3% upward over the past 90 days.

Adobe Inc. (ADBE - Free Report) operates as a diversified software company. The company offers Adobe Creative Cloud that facilitates in marketing, analytics and data jobs. The company’s expected earnings growth rate for the current year is 17.6% compared with the Zacks Computer - Software industry’s projected earnings growth of 1.6%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 5.5% upward over the past 60 days.

Dell Technologies Inc. (DELL - Free Report) designs, develops, manufactures, markets, sells, and supports Information technology solutions, products, and services. Dell Cloud On Demand is an enterprise-class, infrastructure-as-a-service (IaaS) solution hosted in a secure Dell data center. vCloud (a partnership with VMware) provides the software, hardware and services that enable organizations to transition existing VMware virtualized workloads to the cloud.

Belonging to the Zacks Computers - IT Servicesindustry, the company has an expected earnings growth rate of 12.7% for the current quarter. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 2.1% upward over the past 60 days.

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