Cloud computing undergirds, in one way or another, everyone’s digital life. Whether you are accessing a piece of content on a video streaming platform or uploading documents for work, you are interacting with a network of cloud servers. Being able to store data on a server somewhere else rather than leveraging on-premise infrastructure has tremendously lowered operating costs for enterprises across the board. This has led to the rise of cloud computing stocks to buy.
As companies and consumers begin to use generative artificial intelligence tools, cloud computing will play an even larger role in “digital transformation,” which refers broadly to the ways in which technological innovations disrupt and improve the ways businesses operate.
2023 has marked a surprising rebound for U.S. equities due to better-than-expected macroeconomic conditions and technological breakthroughs including generative AI. Thus, cloud computing stocks have done well in tandem, but that does not mean there are no bargains to be found. If you are looking for some undervalued cloud computing stocks that equity investors should buy, you might want to check out these three companies that have strong growth potential and competitive advantages in the cloud market.
Alibaba (NYSE:BABA) is China’s e-commerce juggernaut and essentially provides the digital infrastructure and logistics for individuals and businesses to transact online in both China and select countries internationally. The company operates through a variety of subsidiaries, including Taobao, Tmall, AliExpress, and Alipay.
With transactions occurring online, the e-commerce platform is tightly held together by a vital cloud infrastructure: Alibaba Cloud Intelligence Group. Alibaba Cloud serves as the cloud computing arm of Alibaba. The cloud network does not only provide cloud services and solutions for Alibaba’s own e-commerce ecosystem but also for other online businesses, as well as for various industries such as gaming, retail, finance, healthcare, education, and more.
A variety of external factors have affected Alibaba’s shares, specifically anti-trust lawsuits and fines which composed an enormous part of the tech sector crackdown in China. Only up a meek 8% year-to-date, the value of BABA’s shares has also been negatively impacted by a sluggish economic recovery post-covid. Cloud revenues have remained robust. Starting out the year with unimpressive growth due to a lack of solid retail sales growth, Alibaba Cloud’s business reported record year-over-year EBITDA growth in the company’s Q2 earnings print.
Rackspace Technology (RXT)
Rackspace Technology (NASDAQ:RXT) is a leading pure-play provider of cloud services and solutions for enterprises across various industries. The cloud computing company helps customers design, build, manage, and optimize their cloud environments. For enterprises desiring to outsource their IT infrastructure, Rackspace also provides managed security and data services to clients.
Over twelve months, Rackspace has been going through a period of restructuring after a serious decline in revenue growth. The factors here are twofold. The macroenvironment has been unforgiving, on the one hand, but there the company also experienced a ransomware attack in December 2022, which severely dented its OpenStack public cloud business.
As the company restructures, there could be an opportunity for investors to benefit from the potential upside. With decent free cash flow generation and better-than-expected revenue growth in Q2’2023, the company could be at an inflection point. Rackspace shares currently trade 1.4x forward sales and 10.5x forward EBITDA.
Upland Software (UPLD)
Upland Software (NASDAQ:UPLD) is a leading provider of cloud-based enterprise work management software that helps businesses improve their productivity, collaboration, communication, and customer experience. Upland’s software portfolio covers various functions such as project management, document automation, customer relationship management, contact center, digital marketing, and more. The software company hosts their software on the cloud and offers a subscription of them to its consumers. Many of Upland’s software solutions to date stem from a host of acquisitions the company has conducted over the past few years.
Though revenue growth has declined year-over-year, the overall macroeconomic environment has delayed certain businesses from investing in large digital transformation efforts. As the economy improves, this trend will change, which should make Upland a relatively cheap enterprise valuation at 1.6x sales and 7.5x forward EBITDA, enticing. Patient investors could potentially benefit from future growth and share appreciation.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.