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3 Top Cloud Computing Stocks to Buy Right Now

By Anders Bylund – Jun 11, 2020 at 9:23AM

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The coronavirus pandemic is driving consumers and businesses toward cloud-based services faster than ever before. These three stocks will let you invest directly in that game-changing megatrend.

The COVID-19 pandemic has slowed down or even halted many business operations around the world, but some companies benefit from the health crisis. For the most part, you'll find that cloud computing stocks fall in the second category as people rely on their products and services to work and play from home.

Some cloud computing specialists are skyrocketing because the positive effects of coronavirus mitigation policies are obvious to any investor. Others are trailing behind at substantial discounts because analysts and investors are focusing on short-term difficulties while a fantastic long-term growth story is developing below the surface.

Here are three cloud computing stocks that are great buys right now. One is already a stellar growth story and the other two are misunderstood long-term investments.

Many icons representing cloud-based business ideas swirl around a globe hovering above a businessman's outstretched hand.

Image source: Getty Images.

IBM

This ain't your father's Big Blue. IBM (IBM -2.32%) started to focus on software and services over hardware a full decade ago, and the company is now a global leader in artificial intelligence, blockchain technologies, Big Data analytics, and more. The common thread among all of IBM's chosen target markets is cloud computing.

The company barely flinched when the COVID-19 crisis came along. IBM's first-quarter report exceeded Wall Street's expectations across the board, and the company also provided optimistic full-year guidance.

"The key area of focus is to ensure that IBM leads into two major transformational journeys our clients are on, Cloud and AI," CEO Arvind Krishna said in IBM's first-quarter earnings call. "I believe that what we are going through today with the shift to remote work, automation, application modernization will accelerate our client shift to hybrid cloud. This gives me immense confidence in our future."

In spite of Krishna's correct confidence in IBM's future results, the stock has roughly followed the broader market through the coronavirus crisis. IBM's shares are trading 18% below their 52-week highs today, and that's after posting a 43% rebound from the 10-year lows of the market bottom in March.

You may have missed the absolute best time to pick up IBM shares at a massive discount but perfect market timing is an impossible game and the stock is still ridiculously cheap. It's not every day you see a market-leading tech giant trading at just 10.5 times forward earnings alongside a 5% dividend yield. That's what you get from Big Blue right now. It's a no-brainer buy for both dividend-seekers and growth investors.

A blue Ethernet cable, twisted into a simple cloud shape.

Image source: Getty Images.

Limelight Networks

Content delivery network (CDN) operator Limelight Networks (EGIO -1.07%) was swept up in the early COVID-19 panic, driving the stock 43% lower between Feb. 20 and March 17. Share prices bounced back over the next few months and then lost steam again. You see, investors figured out along the way -- somewhere in early April -- that Limelight gets more business done in a world where video-streaming services are becoming the default entertainment option and people working from home need a secure connection to their employer's intranet.

Limelight is playing a significant role in each rollout of new video-streaming services and the company also offers business-friendly tools such as cloud-based network security and computing clusters at the edge of the cloud. Businesses of every stripe are figuring out how to incorporate these cloud services in their day-to-day operations. This company is poised to deliver fantastic revenue growth for years to come.

"I do believe we can grow revenues in the double digits on a sustained basis," CFO Sajid Malhotra said on Limelight's earnings call in April. "We should on an organic basis be able to attain the $300 million mark in revenues a full year ahead of current analyst expectations. Current estimates do not have us getting there till 2024. I say that now, because what the business looks like post-COVID is very relevant and important to the investment decisions and choices you're making every day."

In other words, the Street is underestimating Limelight's top-line growth and investors should build their long-term financial models around an accelerated set of assumptions. This stock isn't exactly cheap but you get a high-octane growth stock for the money.

Alibaba's Genie logo.

Image source: Alibaba Group.

Alibaba

Like IBM, Alibaba Group (BABA 1.18%) has tracked alongside the broader market in 2020. Unlike Big Blue, the Chinese e-commerce and cloud computing giant sits just below January's all-time high share prices.

You might think of Alibaba as a pure play on China's exploding e-commerce sector, and there is some truth to that idea but it's far from the whole story. The company also commands a 46% of China's total cloud computing market, according to market analyst firm Canalys. Runner-up Tencent Cloud has to settle for an 18% slice of the same market's annual revenues.

The company recently announced a $28 billion investment in expanding its cloud computing services, both within China and around the world, over the next three years. An annual cloud expansion budget north of $9 billion is nothing to sneeze at, and Alibaba is able to devote this huge investment to cloud computing thanks to the massive cash flows that stem from its online retail and back-office operations.

And you can buy into Alibaba's multiple growth engines at the low price of 21 times forward earnings. What are you waiting for?

Anders Bylund owns shares of Alibaba Group Holding and IBM. The Motley Fool owns shares of and recommends Alibaba Group Holding and Tencent Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$118.81 (-2.32%) $-2.82
Edgio, Inc. Stock Quote
Edgio, Inc.
EGIO
$2.78 (-1.07%) $0.03
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$79.99 (1.18%) $0.93

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