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5 Stocks to Watch as Cloud-Based Platform Service Demand Rises

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Over the past few years, businesses have been opting for cloud computing models to run basic and crucial functions. Platform-as-a-Service aka PaaS is a cloud computing model that engages a third-party provider to offer hardware and software tools to users over the Internet/cloud. It not only has the upper hand on traditional software development methods and applications but also increases efficiency, brings innovation, and reduces costs.

The pandemic has sped up digital transformation across the industry, leading to the adoption of technologies like cloud computing, artificial intelligence, Internet of Things and more. Similarly, PaaS has witnessed heightened demand, be it in computing platforms, web applications, business applications, or social applications.

PaaS allows customers (or programmers of a company) to develop, run and manage applications over the Internet by accessing pre-built tools and other resources. The development and deployment environment in the cloud requires more than IT infrastructure. PaaS includes middleware, development tools, business intelligence services, database management systems and more, to support the web application lifecycle -building, testing, deploying, managing, and updating. Hence, businesses can avoid the expense and complexity of buying and managing software licenses, infrastructure and middleware, and bypass costs to hire qualified employees to develop and maintain websites and host applications.

The global PaaS market spreads across the public, private and hybrid clouds and caters to financial institutions and services, retail, logistics, education services, travel and entertainment, healthcare, and life sciences sectors. Companies offering PaaS generates revenues through subscriptions and licenses from web/software developers or other businesses. Companies that are uncertain about adopting sophisticated development software or business intelligence and analytics tools can also use PaaS’ pay-as-you-go model to use and research without paying a hefty amount to purchase the software or infrastructure immediately.

Per The Business Research Company report, the global PaaS market is expected to rise from $47.29 billion in 2020 to $54.09 billion this year, at a CAGR of 14.4%. In fact, the study shows that social distancing, remote working, and the closure of commercial activities due to the pandemic have resulted in several operational challenges and PaaS can help businesses overcome this situation. Given the current trend, the market can reach $88.11 billion in 2025, at a CAGR of 13%.

5 PaaS Stocks to Watch

PaaS providers have lucrative opportunities as they leverage this technology to enhance agility, capability, increase development and deployment speed. Moreover, the development of the mobile application ecosystem and the emergence of video communication PaaS boosted by 5G deployment are also boosting the space.

Hence, investors can keep an eye on five stocks that can make the most of the demand for PaaS.

Shopify Inc. (SHOP - Free Report) provides a commerce platform and related services. Its PaaS platform offers more than 2,500 applications, enabling merchants to set up virtual online stores with catalog and shopping cart functionality.

The company’s expected earnings growth rate for the current year is 28.4% compared with the Zacks Internet - Services industry’s projected earnings growth of 2.8%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 9.4% upward over the past 60 days. Shopify sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Microsoft Corporation (MSFT - Free Report) develops, licenses, and supports software, services, devices, and solutions. The company offers Microsoft Azure as a PaaS that consumers can use on a pay-as-you-go basis. The company’s expected earnings growth rate for the current year is 8% compared with the Zacks Computer - Software industry’s projected earnings growth of 1.4%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 3.6% upward over the past 60 days. Microsoft carries a Zacks Rank #2 (Buy).

Alphabet Inc. (GOOGL - Free Report) provides online advertising services. The company also offers Google Cloud Platform that provides infrastructure as a service, platform as a service, and serverless computing environments. The company’s expected earnings growth rate for the current year is 73.8% compared with the Zacks Internet - Services industry’s projected earnings growth of 2.8%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 14.3% upward over the past 60 days. Alphabet carries a Zacks Rank #3 (Hold).

Workday, Inc. (WDAY - Free Report) provides enterprise cloud applications. In its PaaS strategy, the company offers an Extend platform that allows customers and partners to build and customize applications and extensions on top of the delivered capabilities in Workday to meet their unique business needs.

This Zacks Rank #3 company’s expected earnings growth rate for the current year is 21.8% against the Zacks Internet - Software industry’s projected earnings decline of 1.8%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 21.8% upward over the past 60 days.

Oracle Corporation (ORCL - Free Report) provides products and services that address enterprise information technology environments. It offers a complete stack of software and hardware infrastructure products for customers and partners to build PaaS solutions. The Oracle Database Cloud Service supports shared services deployment models.

This Zacks Rank #3 company’s expected earnings growth rate for the next quarter is 3.8% compared with the Zacks Computer - Software industry’s projected earnings growth of 1.8%. The Zacks Consensus Estimate for this company’s next-year earnings has been revised nearly 1% upward over the past 90 days.