Advances in artificial intelligence are fueling a rise in cloud spending as organizations rely on cloud infrastructure to develop, test, and deploy AI platforms, making it essential to AI innovation. Thus, investors could consider investing in fundamentally sound cloud computing stocks ServiceNow, Inc. (NOW), Nutanix, Inc. (NTNX), and Twilio Inc. (TWLO) with high growth.

U.S. organizations are increasingly transitioning from traditional legacy software to cloud-based solutions to mitigate the financial impact of the pandemic and accommodate the rising adoption of advanced technologies like Artificial Intelligence (AI), Machine Learning (ML), 5G, and the Internet of Things (IoT). This transformation is anticipated to significantly contribute to the expansion of the U.S. cloud computing market.

The U.S. cloud computing market is projected to grow at a CAGR of 20.3% from 2024 to 2030. Moreover, according to the latest update to the International Data Corporation (IDC) Worldwide Software and Public Cloud Services Spending Guide, worldwide spending on public cloud services is forecast to reach $805 billion in 2024 and double in size by 2028.

Considering these factors, let’s take a look at the fundamentals of the three cloud stock picks.

ServiceNow, Inc. (NOW)

NOW provides the Now Platform for digital transformation, offering workflow automation, AI, IT service management, and risk management solutions. It serves industries like government, finance, healthcare, IT, and telecom worldwide.

NOW’s revenue has grown at a CAGR of 23.7% over the past three years, and its operation income has risen by a CAGR of 73.8% over the same time frame.

On November 19, 2024, NOW announced an expanded strategic alliance with Microsoft Corporation (MSFT) to modernize front-office business processes using Copilot and agents. This expansion builds on their long-standing partnership, which recently led to the integration of NOW’s Now Assist with Microsoft 365 Copilot.

On November 13, 2024, NOW and Five9, Inc. (FIVN) expanded their partnership to integrate ServiceNow’s CSM with Five9’s Intelligent CX Platform. This AI-powered solution aimed to streamline customer support, enhance efficiency, and reduce operational costs while improving customer satisfaction.

In the fiscal third quarter ended September 30, 2024, NOW’s non-GAAP total revenues increased 22% year-over-year to $2.79 billion. Its non-GAAP income from operations was $872 million, up 31% from the year-ago value. Moreover, its non-GAAP net income and non-GAAP EPS stood at $775 million and $3.72, respectively.

Street expects NOW’s revenue and EPS for the fourth quarter ending December 30, 2024, to increase 21.5% and 17.5% year-over-year to $2.96 billion and $3.66, respectively. It surpassed the consensus EPS and revenue estimates in all of the trailing four quarters.

The stock climbed 59.1% year-to-date and has returned 63.8% over the past year to close the last trading session at $1124.34.

NOW’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a B grade for Growth, Sentiment, and Quality. It is ranked #13 out of 39 stocks in the B-rated Software - Business industry.

Beyond what is stated above, we’ve also rated NOW for Stability, Momentum, Sentiment, and Value. Get all NOW ratings here.

Nutanix, Inc. (NTNX)

NTNX provides an enterprise cloud platform in North America, Europe, the Asia Pacific, the Middle East, Latin America, and Africa. The company offers a hyperconverged infrastructure software stack that converges virtualization, storage, and networking services into a turnkey solution: Acropolis Hypervisor, an enterprise-grade virtualization solution.

NTNX’s revenue has grown at a CAGR of 15.1% over the past three years and its levered FCF has risen at a CAGR of 21.8% over the same time frame.

On November 12, 2024, NTNX, a leader in hybrid multi-cloud computing, announced that it extended the company's AI infrastructure platform with a new cloud-native offering, Nutanix Enterprise AI (NAI), that can be deployed on any Kubernetes platform, at the edge, in core data centers, and on public cloud services like AWS EKS, Azure AKS, and Google GKE. 

NTNX’s total revenue for the first quarter, which ended October 31, 2024, was $511.05 million. The company’s gross profit stood at $429.10 million. Its non-GAAP net income came in at $121.77 million and $0.42 per share.

Street expects NTNX’s revenue to increase 13.5% year-over-year to $641.76 million for the second quarter ending January 2025. The company’s EPS for the same quarter is expected to increase 2.5% year-over-year to $0.47. Also, NTNX surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 12.8% over the past three months to close the last trading session at $67.77.

NTNX’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

The stock has an A grade for Growth and Quality and a B for Sentiment. NTNX is ranked #10 out of 127 stocks in the Software - Application industry.

Click here to access the additional NTNX ratings (Value, Momentum, and Stability).

Twilio Inc. (TWLO)

TWLO provides a customer engagement platform comprising international communications application programming interfaces. It operates through two segments: Twilio Communications and Twilio Data & Applications.

On October 1, TWLO and OpenAI collaborated to integrate OpenAI’s Realtime API into its platform. This integration will enable TWLO to build conversational AI applications and agents, which will bring customers more natural interactions to the platform.

On September 9, TWLO announced expanded accessibility of Rich Communication Services (RCS) messaging via its Programmable Messaging and Verify APIs to enhance branded and verified messaging and build customer trust in its source.

The company’s revenue and levered FCF have grown at CAGRs of 19.4% and 41.2% over the past three years, respectively.

In the fiscal third quarter that ended on September 30, 2024, TWLO’s revenue increased 9.7% year-over-year to $1.13 billion with a GAAP gross margin of 51% (up 100 bps year-over-year). The company reported non-GAAP income from operations of $182.42 million, indicating a 33.7% increase from the prior-year quarter.

TWLO’s non-GAAP net income came in at $163.92 million, up 53.6% year-over-year, while its non-GAAP net income per share grew 75.9% from the year-ago value to $1.02.

According to the financial guidance for fiscal year 2024, the company’s non-GAAP income from operations is projected to be between $700 million and $710 million, with organic revenue growth anticipated to range from 7.5% to 8%.

The consensus revenue estimate of $1.16 billion for the fiscal fourth quarter (ending December 2024) represents a 7.8% increase year-over-year. The consensus EPS estimate of $1 for the same quarter indicates a 16.6% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

TWLO’s stock gained 25.6% over the past month to close the last trading session at $113.42.

TWLO’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

The stock has an A grade for Growth and a B for Sentiment and Value. TWLO is ranked #7 out of 18 stocks in the Software - SAAS industry.

In addition to the POWR Ratings highlighted above, one can access TWLO’s ratings (Momentum, Stability, and Quality) here.

What To Do Next?

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NOW shares were trading at $1,116.99 per share on Monday afternoon, down $7.35 (-0.65%). Year-to-date, NOW has gained 58.10%, versus a 28.68% rise in the benchmark S&P 500 index during the same period.

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

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