The cloud and artificial intelligence (AI) markets expanded rapidly over the past decade. Many companies realized it was more convenient to use cloud-based services instead of desktop-based software -- which required more on-site computing power, maintenance, and manual updates -- and they used AI algorithms to crunch all of that cloud-based data to make smarter decisions.
Three companies that benefited from those secular trends are Microsoft (MSFT 1.21%), Cloudflare (NET 3.16%), and Five9 (FIVN 2.24%). Let's see what makes those companies great cloud and AI plays, and why they could still head higher over the next few decades.
Image source: Getty Images.
Microsoft
Microsoft was once a slow-growth tech giant. But under Satya Nadella, who took the helm as CEO in 2014, it aggressively expanded its cloud ecosystem, rolled out more mobile apps for iOS and Android instead of developing its own phones, and invested in new AI technologies.
NASDAQ: MSFT
Key Data Points
By transforming its desktop-based applications into cloud-based services and mobile apps, Microsoft kept pace with Amazon and Alphabet's Google in the cloud and AI race. Today, Microsoft's Azure is the world's second-largest cloud infrastructure platform after Amazon Web Services (AWS). It also owns a major stake in OpenAI, the creator of ChatGPT, and it's integrating its own Copilot AI companion into its Windows operating system, Office productivity apps, and cloud-based services.
From fiscal 2014 to fiscal 2024 (ended last June), Microsoft's revenue increased at a compound annual growth rate (CAGR) of 11% and its EPS rose at a CAGR of 16%. From fiscal 2024 to fiscal 2027, analysts expect its revenue and EPS to both rise at a CAGR of 14%. That's an impressive growth trajectory for a stock that trades at 28 times next year's earnings.
Microsoft isn't immune to the rising tariffs and escalating trade conflicts that could drive many of its customers to rein in their software spending. But over the long term, the growth of the cloud and AI markets should still tether more customers to its sticky ecosystem.
Cloudflare
Cloudflare is one of the world's largest content delivery network (CDN) providers. CDNs accelerate the delivery of digital content for websites and apps by storing cached copies of that content on edge servers, which are located closer to their users than the original servers. They also shield websites from bot-based attacks with verification checks for their human users.
NYSE: NET
Key Data Points
Cloudflare's co-founder and COO, Michelle Zatlyn, has repeatedly said the company aims to become a "water filtration" system for the modern internet, which shields both websites and their visitors from cyber threats. In 2023, Cloudflare launched Workers AI, a platform that enables developers to directly build and deploy AI apps across its edge networks.
Today, Cloudflare serves data from facilities in 335 cities in more than 125 countries, and it processes an average of 71 million HTTP requests each second. If its services went down, many of the world's most popular websites and apps would be inaccessible. That's why Cloudflare should continue to grow even if the Trump administration's tariffs and trade conflicts trigger a global recession.
Cloudflare went public in 2019, and its revenue rose at a CAGR of 40% from 2020 to 2024. From 2024 to 2027, analysts expect its revenue to grow at a CAGR of 27% and finally turn profitable by the final year. The stock isn't a bargain at 16 times next year's sales, but it's a straightforward way to profit from the growth of the cloud and AI markets.
Five9
Five9 is a leading provider of cloud-based customer support services. It helps companies manage their customer interactions across voice, chat, email, web, social media, and mobile channels with AI-powered chatbots and human agents. Its customers can add those services to its apps with just a few lines of code. It now serves more than 3,000 enterprise, mid-market, and SMB customers worldwide, and it handles over 14 billion call minutes every year.
NASDAQ: FIVN
Key Data Points
Five9 plans to replace traditional call centers with its streamlined services, and that business model is built to flourish through economic downturns. Companies will likely ramp up their usage of Five9's services as they expand, but they can also use them to cut costs and curb their dependence on human customer service representatives.
From 2014 to 2024, Five9 grew its revenue at a CAGR of 26%. From 2024 to 2027, analysts expect its revenue to rise at a CAGR or 10%. They also expect it to turn profitable this year and grow its EPS at a CAGR of 125% over the following two years.
Based on those expectations, Five9's stock looks cheap at less than 2 times this year's sales -- and it's a great way to profit from the long-term growth of the cloud-based contact center market.
