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4 Stocks to Buy on Increased Cloud Infrastructure Spending

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The cloud infrastructure market always had immense potential and was thriving. It got a further boost following the coronavirus outbreak as millions worked, learnt, played and shopped from home.

Given that the entire world is still reeling under the fears of COVID-19, which has completely changed everyone’s lifestyle, cloud business is only going to grow further. As a result, all major players are pumping in millions of dollars into it.

Cloud Infrastructure Spending on the Rise

According to a Tech Crunch report, a recent finding by Synergy Research shows that cloud infrastructure market revenues hit $42 billion in the second quarter, with most big players reporting a jump of over $2 billion from the first quarter. On a quarter-over-quarter basis, revenues grew 39% in Q2, recording an increase for the fourth straight quarter.

A separate report form Canalys shows that global spending on cloud infrastructure reached $47 billion in the second quarter, up 36% from the first quarter. This means that expenditure was higher by more than $5 billion in the second quarter than the earlier three-month period and over $12 billion on a year-over-year basis.

As the pandemic has seen more people working and learning remotely, demand for storage has increased. This has seen organizations focusing more on planning business resiliency. This has led companies to accelerate to digital transformation, thus increasing adoption and consumption of cloud.

Cloud Market Poised to Grow

Given that the concept of working, learning and shopping has changed, companies providing cloud-based solutions are fast adopting software-as-a-service.

At the same time, most businesses are shifting data and information to technological and digital platforms to safely remain afloat. This is not only benefiting the cloud business but also encouraging cloud providers to boost their infrastructure spending.

Increasing spending is thus resulting in growth of revenues, with big players making the most. According to Canalys, the top three cloud service providers in the second quarter were, Inc.’s (AMZN - Free Report) Amazon Web Services (AWS), Microsoft Corporation’s (MSFT - Free Report) Microsoft Azure and Alphabet, Inc.’s (GOOGL - Free Report) Google Cloud. Collectively, the three accounted for 61% of the total spending.

In the second quarter, AWS accounted for 31% of the total spending, growing 37% on a year-over-year basis. Microsoft’s Azure came in second, accounting for 22% of the market share and growing 51% year over year. Google Cloud grew 66% year over year and accounted for 8% of the market share.

Storing and managing huge data is increasingly becoming important for the healthcare industry also. This should only boost the demand for cloud services.

According to IDC, spending on compute and storage cloud infrastructure is projected to witness a CAGR of 11.3% between 2021 and 2025, reaching $112.9 billion. This will account for 66.1% of total spending on computing and storage infrastructure.

Our Choices

Tech companies have been aggressively expanding their cloud services, given that the coronavirus pandemic is far from over. Given the situation, we have shortlisted four tech companies that are sure to benefit from the soaring demand for cloud services.

Digital Turbine, Inc. (APPS - Free Report) offers products and solutions for mobile operators, device OEMs and third parties. The company's products include a mobile device management solution DT Ignite with targeted app distribution capabilities, a customized user experience and app discovery tool DT IQ, an application and content store named DT Marketplace, and DT Pay — a content management and mobile payment solution.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved more than 6.4% over the past 30 days. Digital Turbine carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pinterest, Inc. (PINS - Free Report) provides a platform to show its users (called Pinners) visual recommendations (called Pins) based on their personal taste and interests. Users then save and organize these recommendations into collections (called Boards).

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved 36.3% over the past 30 days. Pinterest has a Zacks Rank #2.

Paycom Software, Inc. (PAYC - Free Report) is a provider of cloud-based human capital management (HCM) software as a service solution for integrated software for both employee records and talent management processes. It serves more than 23,500 clients or nearly 12,700 customers based on Parent Company Grouping. 

The company’s expected earnings growth rate for the current year is 25.2%. The Zacks Consensus Estimate for current-year earnings improved 3.1% over the past 30 days. Paycom sports a Zacks Rank #1.

j2 Global, Inc. provides Internet information and services. J2 Global primarily has two business segments: Digital Media and Cloud Services.

Cloud Services operates a portfolio of web properties and apps, including IGN, Mashable, PC Mag, Humble Bundle, Speed test, Offers, Black Friday, AskMen, MedPage Today, Everyday Health and What to Expect.

The company’s expected earnings growth rate for the current year is 17.5%. The Zacks Consensus Estimate for current-year earnings improved 2.2% over the past 30 days. j2 Global has a Zacks Rank #2.