3 Highly Rated Cloud Stocks Ready To Breakout

Rick Orford - Barchart - Fri Jan 26, 5:45AM CST

The S&P500 and Nasdaq 100 have reached new highs, and tech stocks lead the optimistic charge after solid earnings and a better U.S. economic outlook. And what better time to launch an earnings play than earnings season? So, let’s look at three buy-rated stocks with strong growth momentum in both financials and price performance.

Arista Networks, Inc. (ANET)

Rating:Moderate Buy

The first on our list is Arista Networks, Inc., a supplier of cloud networking solutions to support internet and networking needs. Its products include Gigabit Ethernet switching, an Extensible Operating System (EOS), and routing platforms. The company previously announced its next-generation 7130 series 25G system, a cutting-edge device that allows ultra-low latency switching that accelerates 25G networking that addresses high-frequency trading needs and 25G market data distribution.

Arista Network also announced its expanded networking architecture that uses the network to compensate for harder-to-implement adaptive authentication controls across the domains of devices, identity, workloads, and data.

ANET is set to report its latest financials on February 12, 2024. There have been hints of solid growth for the company, showcasing 28.3% revenue growth, a 54% GAAP net income growth YoY, and an improved gross margin of 62.4%. Its CEO, Jayshree Ullal, highlighted strong customer momentum from the cloud/AI and enterprise sectors. ANET’s full-year outlook anticipates “revenue growth above 33%.” With solid momentum and financial performance, the company is potentially poised for another strong quarter and an even better full-year release.

Pure Storage, Inc. (PSTG)

Rating: Strong Buy
Next on our list is Pure Storage, Inc., which offers unique data storage products and services. This includes different product types and subscription services support for unstructured and structured data across any workload. Its subscription services include Portworx by Pure Storage and Portworx Data Services (PDS), FlashArray Platform, Cloud Block Store, FlashBlade Platform, and many more. PSTG's innovative Evergreen Storage-as-a-Service (StaaS) consumption service that offers a Cloud Operating Model for multi-cloud infrastructures has been one of the company’s performance boosters—no wonder it's well-loved by Wall Street.

Pure Storage has made great strides in its various business segments and offerings, helping customers cut hardware costs by 80%, increase customer acquisitions, and create breakthroughs in enterprise-scale AI development. Further, the company also received accolades for its products and services and has recently been awarded the 2023 IDC MarketScape for container data management.

PSTG reported a strong quarter, with record sales from the FlashBlade portfolio increasing 13% YoY. Meanwhile, subscription annual recurring revenue (ARR) and subscription services revenue grew over 26% YoY. Current non-GAAP operating margins are 22.2% and are expected to end at 19% next quarter. Revenue for Q4’24 is also anticipated to reach $782 million.

Palo Alto Networks, Inc. (PANW)

Rating:Strong Buy

Last on our list of buy-rated cloud stocks is a worldwide cybersecurity powerhouse. Palo Alto Networks, Inc. is a global cybersecurity platform that promises to help companies secure their networks, clouds, and endpoints with artificial intelligence and automation-backed solutions. It offers a complete zero-trust solution to customers with its network security platform and security analytics, automation, attack surface management, and endpoint security solutions.

The company has been making acquisitions to expand its product offerings further, like the Talon Cyber Security and Dig Security acquisitions, which aim to expand its SASE solution and improve its real-time capabilities for cloud protection.

PANW’s most recent quarterly results showcased why the company is well-loved by analysts. Revenue grew 20% YoY, with remaining performance obligations revenue increasing by 26% for the same period. GAAP net income also skyrocketed by 871%. Its CEO, Nikesh Arora, attributes this excellent financial performance to the heightened demand in the cybersecurity market. He further emphasizes the company's commitment to platformization and enhancing customer security outcomes.

Forward numbers are also optimistic. Total billings are expected to reach between $10.7 billion and $10.8 billion, while diluted non-GAAP net income per share is anticipated to end between $5.40 and $5.53. Non-GAAP operating margin is expected to reach 26% to 26.5%. With impressive performance and growing demand, PANW is poised to continue its growth in the following quarters.

Final Thoughts

Analysts are excellent sources for buy-rated stocks, but investors should still conduct their due diligence. Experts can have different opinions or subscribe to different investment strategies. Not to mention that—like all of us—they can sometimes be wrong. We should all have a good understanding of the companies we buy to identify any underlying issues.

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On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.