Cloud computing continues to undergird much of America’s vibrant services sector. Many enterprises are making the switch from maintaining on-premises servers and resources to putting their data on remote cloud servers. While relying on distant cloud servers provides less autonomy, it does bring down certain costs. As a result, there are certainly some cloud computing stocks to sell.
The global COVID-19 pandemic was key growth driver in cloud migration. Many companies were forced to operate remotely, and some had to rely more on cloud-based products. Since 2023, there has been a lot of investor craze around artificial intelligence and machine learning. In particular, the launch of OpenAI’s ChatGPT really put the capabilities of generative AI into the spotlight. Now companies across the technology sector want a piece of pie and have pursued developments of their own AI-based products. Ultimately, the training of large language models (LLMs), which make generative AI what it is, relies on large amounts of computing power in cloud-centric data centers. That is all to say, AI technologies will be another key growth lever for cloud computing companies in the future.
However there are some companies in the space to stay away from, if you’re a public equities investor. Below are three cloud computing stocks to sell.
Cisco Systems (CSCO)
Cisco Systems (NASDAQ:CSCO) was key to providing the networking infrastructure that made the internet what is today. The firm’s “Agile Networks” business sells switches and routers, which form the basis of private and public networks. Moreover, Cisco’s “End-to-End Security” product segment includes cloud-based cybersecurity offerings that keeps business networks secure from outside cyber threats. Cisco has also built some of the important components that go into modern-day servers that power cloud networks. The company’s durable 8000 series routers help companies create and manage their on-premises and public cloud infrastructure.
Unfortunately for Cisco, some of its main clients are telecommunications companies who are still digesting large amounts of inventory and have struggled to quickly implement new projects. In late 2023, Cisco made in an earnings statement that clients were still busy installing and implementing products after a significant amount of deliveries in prior quarters. In 2024, the network equipment provider is still dealing with inventory digestion amongst its clients. Most recently in the Cisco’s Q3 earnings report for fiscal year 2024, revenue declined by 11% year-on-year, its steepest drop since 2009.
CSCO shares have dipped more than 5% on a year-to-date basis, and despite the company’s management saying they expect clients to purchase new equipment in the second half of the year, investors should remain skeptical, as there are telecom industry watchers saying it could take even longer for inventory levels to normalize.
Fastly (FSLY)
Fastly (NYSE:FSLY) offers an edge cloud platform that processes and services applications worldwide. The company categorizes the “edge cloud” as an “Infrastructure as a Service” (IaaS) technology that empowers developers to create and deliver digital experiences. Fastly’s network services also include content delivery networks, which effectively allow internet users to quickly access content that are stored on remote servers. Lastly, the edge cloud platform’s security business segment includes products designed to protect websites, apps, and users.
Despite being in a growing area of the technology sector, Fastly’s shares have tanked recently. Not only have revenue and earnings growth contract in recent quarters, but now the firm is embroiled in a class-action lawsuit for “misleading” investors in its financial guidance. In Q4’2023, Fastly apparently gave very positive statements about where its revenue was going to be and continued to make upbeat statements a few weeks before its Q1’2024 earnings release. Once Fastly released those results, not only did the firm’s financial figures miss estimates but the company also revised its guidance range downward.
Fastly’s share price has plummeted 58.4% on a year-to-date basis. You can see why this made our list of cloud computing stocks to sell.
Snowflake (SNOW)
Snowflake (NYSE:SNOW) offers a cloud-based platform that houses enterprise data and generates actionable insights. In particular, Snowflake’s Data Cloud enables customers to consolidate data into a “single source of truth” in order to empower the development of data-driven applications and products. The firm also leverages artificial intelligence (AI) to facilitate business efficiencies. For example, Snowflake’s Cortex AI can process data at scale using large language and machine learning models.
Snowflake’s “product revenue,” which accounts for sales generated when a customer uses Snowflake’s software for storing and running queries on data stored in its system, is the data platform’s key growth driver. According to Snowflake’s Q1 earnings report for fiscal year 2024, demand for AI products remains high amongst its customer cohort. However, Snowflake’s net revenue retention (NRR), which is a retention metric calculated using revenue from existing customers and adding any expansions and churn, declined to 128% from 151% a year ago. This could mean Snowflake’s AI product growth may not be enough to outweigh churn in other product categories.
SNOW shares are down 28.2% on a year-to-date basis, and unless end-market demand picks up, investors can expect Snowflake shares to suffer even more. Make sure you drop these cloud computing stocks to sell.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Tyrik Torres did not hold (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.