The cloud computing industry is rapidly expanding, driven by the increasing demand for scalable, cost-effective solutions and enhanced data security. Innovations in AI and ML are further accelerating its growth across various sectors.
Therefore, investors looking to invest in fundamentally strong cloud computing stocks might consider investing in industry giants Microsoft Corporation (MSFT), Amazon.com, Inc. (AMZN), and Alphabet Inc. (GOOGL), which are driving digital transformation.
The cloud computing market is seeing substantial growth as more businesses prioritize cost savings and improved data security by adopting cloud solutions. Artificial Intelligence and Machine Learning play a crucial role in this digital shift, facilitating real-time analytics and the advanced processing of big data. Therefore, the cloud computing market is forecast to grow at a CAGR of 18.5% by 2029.
Additionally, cloud services are slowly replacing personal computers and local servers, especially in large enterprises and private deployments. Video-on-demand and image and video processing are key applications of cloud computing, with public cloud services providing affordable solutions for businesses.
Considering these encouraging trends, let’s take a detailed look at the fundamentals of the three best cloud computing stocks.
Stock #3: Microsoft Corporation (MSFT)
MSFT is a technology company that develops and supports software, services, devices, and solutions worldwide. The company operates through three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
Last year, in November, MSFT announced an expanded partnership with C3.ai, Inc. (AI) to accelerate the adoption of Enterprise AI on Microsoft Azure. This collaboration enhances their relationship by integrating C3 AI’s advanced application software, including C3 Generative AI, with Azure’s powerful cloud ecosystem.
Under this, MSFT became the preferred cloud provider for C3 AI solutions, while the firm is now a top AI application provider on Azure. The alliance focuses on innovation, integration, and joint marketing, sales, and support efforts to drive Enterprise AI adoption across industries, benefiting customers and stakeholders.
MSFT’s trailing-12-month levered FCF margin of 19.85% is 68.2% higher than the industry average of 11.80%. Likewise, its trailing-12-month net income margin and ROCE of 35.43% and 34.29% are considerably above their respective industry averages of 4.03% and 4.53%.
For the second quarter of 2025, which ended on December 31, 2024, MSFT’s total revenue increased 12.2% year-over-year to $69.63 billion. The company reported an operating income of $31.65 billion, indicating a 17.1% growth from the prior-year quarter. In addition, its net income amounted to $24.11 billion or $3.23 per share, reflecting an increase of 10.2% year-over-year.
The consensus revenue estimate of $68.46 billion for the fiscal third quarter (ending March 2025) represents a 10.7% increase year-over-year. The consensus EPS estimate of $3.21 for the same quarter indicates a 9.2% improvement year-over-year. The company has an excellent surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 1.5% over the past six months to close the last trading session at $412.22.
MSFT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MSFT has a B grade for Stability, Sentiment, and Quality. It is ranked #11 out of 40 stocks in the B-rated Software - Business industry. Click here to see the additional ratings for MSFT (Growth, Value, and Momentum).
Stock #2: Amazon.com, Inc. (AMZN)
AMZN engages in the retail sale of consumer products and subscriptions through online and physical stores in North America and internationally. It operates through three segments: North America, International, and Amazon Web Services (AWS). The company’s products offered through its stores include merchandise and content purchased for resale and products offered by third-party sellers.
On January 24, 2025, AMZN’s AWS and Booz Allen announced an expanded partnership to accelerate digital transformation for U.S. federal agencies, focusing on cloud migration, cybersecurity, and AI. The collaboration will deliver ready-made enterprise solutions to enhance security, efficiency, and innovation across defense, intelligence, and civil missions.
On January 14, 2025, AWS launched the AWS Mexico (Central) Region, investing over $5 billion to enhance cloud infrastructure, create jobs, and drive innovation. The investment aims to add $10 billion to Mexico’s GDP and includes a $300,000 AWS InCommunities Fund to support local projects.
In terms of the trailing-12-month net income margin, AMZN’s 9.29% is 121.2% higher than the 4.20% industry average. Likewise, its 13% trailing-12-month Capex/Sales is 353% higher than the 2.87% industry average. Moreover, the stock’s 1.11x trailing-12-month asset turnover ratio is 10.3% higher than the 1x industry average.
AMZN’s total net sales for the fiscal fourth quarter, which ended on December 31, 2024, came in at $169.96 billion. The company’s operating income was $13.21 billion. Additionally, the company’s net income and EPS were $10.62 billion and $1, respectively.
Analysts expect AMZN’s EPS and revenue for the quarter ending March 31, 2024, to increase 37.8% and 8.2% year-over-year to $1.35 and $155 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 33.6% to close the last trading session at $233.14.
AMZN’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
It is ranked #11 out of 48 stocks in the A-rated Internet industry. It has an A grade for Sentiment and a B for Growth, Momentum, and Quality. Beyond what we stated above, we have also rated AMZN for Value and Stability. Get all ratings of AMZN here.
Stock #1: Alphabet Inc. (GOOGL)
GOOGL offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments.
GOOGL’s trailing-12-month net income margin of 28.60% is 616.6% higher than the industry average of 3.99%. Its trailing-12-month EBIT margin of 32.11% is 216.7% higher than the 10.14% industry average. Also, the stock’s trailing-12-month EBITDA margin of 36.48% is 94.7% higher than the 18.74% industry average.
During the fourth quarter, which ended December 31, 2024, GOOGL’s revenues increased 11.8% year-over-year to $96.47 billion. Its operating income rose 30.7% from the year-ago value to $30.97 billion. Net of $20.69 billion indicates growth of 28.3% from the prior year’s quarter. Also, its EPS was $2.15, up 31.1% year-over-year.
Street expects GOOGL’s revenue and EPS for the first quarter (ending March 2025) to increase 10.9% and 7% year-over-year to $89.33 billion and $2.02, respectively. Also, the company has topped the consensus EPS estimates in all of the trailing four quarters.
Shares of GOOGL have surged 25.2% over the past year to close the last trading session at $186.47.
GOOGL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
GOOGL has a B grade for Quality. It is ranked #13 in the Internet industry.
Click here to access the additional GOOGL ratings (Growth, Momentum, Stability, and Value).
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
MSFT shares were trading at $410.10 per share on Tuesday afternoon, down $2.12 (-0.51%). Year-to-date, MSFT has declined -2.70%, versus a 3.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
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.
The post 3 Cloud Computing Leaders Elevating Digital Transformation appeared first on StockNews.com