Cloud Stocks on the Horizon: ServiceNow, Datadog, and Snowflake

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Cloud Stocks on the Horizon: ServiceNow, Datadog, and Snowflake

Cloud Stocks on the Horizon ServiceNow’s Remarkable Results Fuel Optimism in Cloud Services

The cloud services sector is buzzing with anticipation, and it’s ServiceNow that’s leading the way. The company’s recent financial results have ignited a wave of optimism among analysts, signaling a bright future for cloud services. Here’s why ServiceNow’s success is a positive sign for the entire cloud industry.

ServiceNow Surpasses Expectations

In a time when many cloud stocks are experiencing downturns, ServiceNow defies the trend. The company’s latest quarterly report showcased remarkable strength, exceeding market expectations. The key drivers behind this impressive performance are the increased demand and a substantial boost from Artificial Intelligence (AI).

AI is rapidly becoming a game-changer in the business world, demonstrating its potential for significant cost savings. This transformative technology is set to dominate cloud services, propelling the industry forward.

A Chance for Beaten-Down Stocks

Many cloud service stocks have taken a hit due to reduced expectations. However, ServiceNow’s success hints at an opportunity for these stocks to outperform expectations and recover their market value.

ServiceNow’s Positive Outlook Sparks Confidence

ServiceNow’s robust financials have contributed to an increasingly positive outlook for the company and the cloud industry as a whole. The company reported a 25% increase in net revenues compared to the previous year, reaching a total of $2.92 billion. This significant revenue growth exceeded consensus estimates, with the government spending and AI sectors showing a remarkable 75% increase in revenue.

Moreover, total subscription revenue surged by 27%, surpassing the consensus by a considerable margin. This growth is further reinforced by a significant increase in the remaining performance obligation.

Guidance and Partnerships Boost ServiceNow

ServiceNow’s upward momentum is largely attributed to its guidance for the upcoming year. The company raised its forecasts, and the recent partnership with Deloitte has only added to its growth potential. Deloitte will integrate ServiceNow’s generative AI into its OperateEdge platform, and several other large clients are following suit. The growth among these prominent clients exceeded 50% during the quarter, providing an additional catalyst for growth.

Analysts’ Positive Stance

Analysts have taken note of ServiceNow’s promising performance and have rated the stock as a Moderate Buy. Throughout the year, they have consistently raised their price targets. The latest data indicates that the stock is expected to trade in the range of $650 to $700, which represents a 7% to 15% increase from its current value.

Datadog: Ready for a Rebound

Despite facing a temporary setback, Datadog holds the potential for a significant rebound. The company’s stock price experienced a decline of over 20% following its Q2 release, primarily due to mixed guidance. While Q2 results exceeded expectations, the guidance included modestly weak top-line forecasts alongside better-than-expected earnings.

A Balanced Outlook

The market’s reaction to Datadog’s mixed guidance might have been an overreaction. Datadog had raised its guidance substantially in Q1, and the adjustments made in Q2 can be seen as a minor correction. The revenue’s anticipated weakness will likely be balanced by the strength in earnings. Analysts are projecting a 25% top-line growth for the next year, combined with a wider margin.

Positive Expectations for Q3 2023

Despite the guidance cut, analysts hold a positive outlook for Datadog in Q3 2023. They have consistently raised their revenue and earnings targets since the Q2 release. While price targets have been lowered for the stock, the market remains poised for a rebound. This activity suggests that the market is in a favorable position for a strong recovery, with a potential for over 20% growth.

Snowflake: Unleashing AI’s Potential

Snowflake, despite facing share price challenges, holds immense potential in the field of Artificial Intelligence (AI). The company’s growth rate may have slowed in 2023, but it is expected to regain momentum in the coming year, offering substantial earnings leverage.

Data Management for AI

Snowflake’s growth is intricately linked to the need for data and data management, an essential component in AI development. The company is actively embedding AI services into its platform to assist businesses in managing and deriving insights from their data. Several strategic acquisitions have reinforced Snowflake’s capabilities in scaling searches and applying AI models.

Promising Outlook

In 2024, Snowflake’s earnings are projected to grow by an impressive 50%. Despite the stock’s recent struggles, analysts are keeping their expectations relatively conservative. High-double-digit growth in large clients and an outstanding 142% net retention rate underscore the company’s potential for growth. Snowflake is expanding its client base and deepening its penetration in the early stages of the AI revolution. Although revenue growth is expected to slow to 28% in Q3 2023, the company’s overall outlook remains favorable.

Before you consider ServiceNow, you’ll want to hear this.

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While ServiceNow currently holds a “Moderate Buy” rating, top-rated analysts have identified five alternative stocks with even more potential.

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