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Got $3,000 to Invest? Here Are 3 No-Brainer Stocks to Buy in Cloud Computing

By Danny Vena – Updated Jul 28, 2020 at 9:01AM

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The need for remote work has accelerated the adoption of cloud computing, and Amazon isn't the only way to profit.

The emergence of the COVID-19 pandemic earlier this year has changed everything, from how we live to how we work, and everything in between. Remote work and videoconferencing have combined to cause a notable acceleration in the adoption of cloud computing, a trend that was already well underway.

When the discussion turns to the cloud, Amazon (AMZN -0.07%), with its Amazon Web Services (AWS), invariably dominates the conversation as the pioneer and still leader in the space. There's little doubt it remains a great place for investors to cut their teeth on the cloud computing revolution, as revenue from AWS grew more than 36% in 2019. 

Yet the opportunities don't stop there, as cloud computing refers to a whole range of software and services that can be provided remotely. And this massive multiyear digital transformation is just getting started.

Let's look at three areas of the cloud, and identify one no-brainer stock opportunity from each.

Business man in suit looking at cloud with falling $100 bills.

Image source: Getty Images.

1. Twilio: a platform-as-a-service dynamo

In its simplest terms, a platform-as-a-service company provides a cloud-based framework for developers, giving them all the resources they need to build applications. This includes servers, storage, and networking that can be managed remotely.

As stay-at-home and remote work became the order of the day, it also became more important than ever for companies to be able to communicate with their customers, particularly those using apps -- from food delivery to ride-hailing, from password resets to customer service, and everything in between.

That's where Twilio (TWLO 3.25%) comes in. The company provides the building blocks that allow developers to include the company's communication technology in their apps, allowing them to seamlessly embed messaging systems -- all of which can be accomplished in a matter of hours, where it previously took weeks.

The company has a network of 29 cloud data centers in nine geographic regions that serve developers in 180 countries. Twilio's growing list of customers, which numbered more than 190,000 at last count, grew by 23% in the first quarter and continued to expand beyond our borders. And 28% of its revenue now comes from international markets, increasing from 24% in 2018. 

The proof is in the pudding. Twilio's revenue grew by 57% year over year in the first quarter, while its dollar-based net expansion rate of 143% (its highest level since late 2018) shows that once customers are on board, they not only stick around, but tend to expand their spending over time.

As the need for in-app communication continues to grow, this will no doubt continue to expand the demand for Twilio's services.

Young mother talking on the phone while using laptop in home office.

Image source: Getty Images.

2. Microsoft: a leader in infrastructure as a service

Infrastructure as a service is the industry Amazon pioneered, making data-center services (like storage, networking, computing, and security) available on an as-needed basis.

Microsoft (MSFT 4.20%) has long trailed AWS in the space, but its Azure cloud computing offering has been closing the gap by growing at a must faster rate. As an example, in the first calendar quarter of 2020, revenue from AWS grew 33%, while Azure grew 59%. 

But that's not the only tool in Microsoft's bag of tricks. The company also provides a host of other services via the cloud, like Microsoft 365, Teams videoconferencing software, Windows Virtual Desktop, and Dynamics accounting software, to name a few.

The diversity of Microsoft's business also makes it attractive. It has exposure to consumer markets and enterprise products (like Xbox gaming and its LinkedIn professional network) in addition to its business and personal software and fast-growing cloud segments.

That strength was on full display in Microsoft's fiscal fourth quarter, ended June 30. Even in the face of the pandemic, revenue grew 13% year over year, with each of its business segments contributing to the better-than-expected performance. Azure grew 47% while Xbox jumped 65%, both boosted by the remote-work and stay-at-home economy. 

This wide assortment of businesses and its high-growth cloud segment make Microsoft an attractive addition to any portfolio.

Man's hand typing on a laptop with digital images appearing above

Image source: Getty Images.

3. Adobe: one of the original software-as-a-service providers

As the name implies, software as a service allows businesses and consumers to rent software rather than buy it, and access it via the cloud. While the concept is commonplace today, that wasn't so in 2012 when Adobe (ADBE 2.29%) made the then-radical decision to switch from shrink-wrapped physical software discs to making its suite of creative software tools available via a cloud-based subscription model.

The rest, as they say, is history. No longer content to offer just its creative software, Adobe has a wide range of products including marketing services, customer relationship management, and analytics tools. Over the past couple of years, the company has made several major acquisitions, pushing it further into marketing and even e-commerce.

Adobe has produced record revenue that has grown in each of the past 21 consecutive quarters. In the second quarter, revenue grew 14% year over year, a deceleration from its recent growth, but impressive nonetheless considering the economic environment wrought by the pandemic. The bottom line grew at an even faster pace, with operating income increasing by 35%. 

The rapid transition to remote work put several of Adobe's businesses front and center. The demand for digital documents surged, with the use of Adobe PDF services climbing 40% sequentially, while the number of documents shares in Acrobat jumped 50% year over year. The company also experienced accelerating adoption for Adobe Sign, its e-signature solution, which has soared 175% so far this year. Installations of Adobe Reader increased 43%, while those of Adobe Scan climbed 66%. 

This illustrates the broad reach of Adobe's cloud-based offerings, and strong demand should continue as the need for remote work remains.


TWLO Chart

Data by YCharts.

The global cloud computing market is expected to grow at a compound annual rate of nearly 19% over the next several years, reaching $761 billion by 2027, according to a report by Fortune Business Insights. Each of these companies is a leader in its respective category, giving investors an outstanding opportunity to profit from the accelerating shift to the cloud.

If you're looking for evidence of the market-beating potential of these cloud innovators, look no further than the results so far this year. Each company has beaten both the S&P 500 and the NASDAQ Composite and beaten them by a wide margin.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Adobe Systems, Amazon, Microsoft, and Twilio. The Motley Fool owns shares of and recommends Adobe Systems, Amazon, Microsoft, and Twilio and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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