The 7 Best Cloud Stocks to Buy for 2022

Arista Networks

• Sector: Information technology
• Industry: Communications equipment
• Market value: $37.7 billion
• Consensus analyst rating: Buy (23 analysts)

Arista Networks (ANET, $122.22) was founded in 2004. The company specializes in multilayer network switches, which are needed for software-defined networking – an important component of cloud computing. ANET's client list includes a roster of internet companies, service providers, financial services organizations, government agencies, entertainment companies and more.

With a trailing one-year return of 87.7%, Arista Networks stock went on a tear last year. Since then, however, ANET's share price has been in a downtrend along with the rest of the market. But there's plenty more fuel left in the tank to make this one of the best cloud stocks for investors in 2022.

For starters, the company has plenty of momentum. In addition to delivering record revenues of $748.7 million for the third quarter, with record adjusted earnings per share of $2.96, ANET is "experiencing strong demand for our pioneering client to cloud networking portfolio across all of our customer sectors," said CEO Jayshree Ullal.

Plus, according to Koyfin's surveys, four analysts rate this stock a Strong Buy, seven a Buy, 11 a Hold and only one a Strong Sell. That's enough for Koyfin to consider this stock an overall Buy.

William Blair's Jason Ader has an Outperform rating on the stock, which is the equivalent of a Buy. ANET still has "best-in-class technology, an industry-leading operating model and an enviable growth rate," he wrote in a recent note.

Hewlett Packard Enterprise

• Sector: Information technology
• Industry: Technology hardware, storage and peripherals
• Market value: $21.9 billion
• Consensus analyst rating: Buy (24 analysts)

In 2015, Hewlett-Packard spun off its business-focused server, storage and networking operations into Hewlett Packard Enterprise (HPE, $16.85).

Now, HPE didn't soar out the gate. In fact, the company's share price dropped roughly 20% in its first three months as a standalone firm, bottoming near $7 on Jan. 20, 2016. However, six years later, with a trailing one-year return of 24.4%, there are good reasons for investors to have HPE on their list of the best cloud stocks for 2022 and beyond.

For starters, the company has an overall Buy rating from Koyfin's survey of 24 analysts. That includes five Strong Buy ratings, eight Buy ratings, nine Hold ratings, one Sell and one Strong Sell.

Koyfin's surveys also reveal a 16.1% 12-month return potential for HPE, based on analysts' average price target of $17.50. And on top of that, the company currently pays a 2.9% dividend yield – more than double the yield of the S&P 500.

Of course, with regard to cloud computing, HPE offers GreenLake Cloud Services. These provide HPE's clients with an on-demand IT infrastructure to be used for machine learning (ML), big data, private cloud, data protection and more.

In the company's fiscal fourth quarter, HPE's GreenLake orders were up 46% year-over-year (YoY) and its as-a-service annualized revenue run-rate (ARR) rose 36% from the year prior. The latter is particularly "notable," said President and CEO Antonio Neri in the HPE's earnings call, because it's a recurring revenue stream that is "high quality and high margin." Hewlett Packard is targeting a CAGR of 35% to 45% for its ARR through fiscal 2024.

Additionally, the firm added more than 300 GreenLake customers in fiscal 2021, bringing the total customer count to 1,250. And contract value for GreenLake grew more than $1.5 billion last year, with the total now exceeding $5.7 billion.

"Our momentum is strong as we enter fiscal year 2022 with a strategy more relevant to customers than ever before and a sharp focus on execution," added Neri.

Put it all together, it's no surprise Stifel analyst Matthew Sheerin (Buy) says HPE's "current valuation gives the company little credit for the work done since spinning out from HP Inc."

NetApp

• Sector: Information technology
• Industry: Technology hardware, storage and peripherals
• Market value: $19.6 billion
• Consensus analyst rating: Buy (23 analysts)

Founded in 1992, NetApp (NTAP, $87.96) provides cloud storage services, cloud control solutions and cloud optimization solutions, among others. NTAP has ranked in the Fortune 500 since 2012. And when a company has made the list for nine consecutive years, that's worth noting.

Raymond James' Simon Leopold (Outperform) says that even though competition is heating up in the cloud computing space, NTAP should be able to adjust "to a multi-cloud environment that includes its Public Cloud Services complementing its core on-premises business."

With that in mind, Leopold also states that "NetApp appears to be gaining share in core storage." He points out that "NetApp's All-Flash-Arrays (AFA) grew 22% year-over-year [in Q3] and account for 30% of the base. Management expects AFA's to reach 70% of the market in a few years."

Leopold isn't alone in his bullish outlook. Koyfin's survey of 23 analysts rate NTAP an overall Buy. Four analysts rate it a Strong Buy, nine say it's a Buy, eight rate it a Hold, and only two have it a Strong Sell.

Shopify

• Sector: Information technology
• Industry: IT services
• Market value: $110.4 billion
• Consensus analyst rating: Buy (44 analysts)

More than 1.7 million businesses in approximately 175 countries use Shopify (SHOP, $809.44) to manage inventory, process payments, fulfill orders, access financing and more. And as one of the world's largest e-commerce platforms, Shopify is a major user of Alphabet's (GOOGL) Google Cloud platform.

As such, Shopify occupies an important place on this list of the best cloud stocks for 2022. "Shopify is well positioned as the leading cloud-based commerce platform," says Baird analyst Colin Sebastian (Outperform). SHOP "remains in the early stages of a large market opportunity, and is leveraged to extremely attractive growth industries (e-commerce and cloud)," he adds.

In fact, Shopify's "merchants cumulative gross merchandise value doubled, going from $200 billion in June 2020 to crossing $400 billion at the beginning of October," said President Harley Finkelstein on the company's third-quarter earnings call in late October.

And with thousands more merchants integrating into Shopify's Facebook, Instagram and Google channels, the company saw year-over-year total revenue growth of 65.6% in the first nine months of 2021.

Sebastian isn't the only one upbeat on SHOP. Of the 44 analysts surveyed by Koyfin, five rate the stock a Strong Buy and twenty say Buy. Seventeen analysts call Shopify a hold, while just two rate it a Strong Sell. Overall, Koyfin considers SHOP a Buy.

Adobe

• Sector: Information technology
• Industry: Software
• Market value: $244.0 billion
• Consensus analyst rating: Strong Buy (31 analysts)

It was a rough end to 2021 for Creative Cloud parent Adobe (ADBE, $510.83), which fell more than 10% after its Dec. 15 fiscal fourth-quarter earnings report. Shares have declined along with the rest of the market so far in 2022, but that just means investors can buy one of the best cloud stocks at a discount.

The reaction to Adobe's earnings report came as a result of the company's weaker-than-expected current-quarter and full-year revenue guidance. However, there were plenty of positives to be found.

For starters, ADBE saw double-digit year-over-year revenue growth across all its segments in its fiscal fourth quarter, including a 29% rise in its Document cloud division. And with $4.1 billion in quarterly revenue – up 21% from the year prior – and $15.8 billion in full-year sales (+23% YoY), the company managed to achieve record Q4 and fiscal 2021 revenue levels.

In addition, CEO Shantanu Narayen, in the company's earnings call, says he believes Adobe has an "immense market opportunity." And that 2022's targets "demonstrate the strength of the underlying business."

As for that guidance, Adobe expects fiscal first-quarter revenue of roughly $4.2 billion and fiscal 2022 revenue of around $17.9 billion – both higher on a year-over-year basis. Plus, CFRA Research analyst John Freeman, who maintained a Strong Buy on the stock after earnings, said "management tends to be particularly conservative when giving initial guidance for an upcoming year."

Of the 31 analysts surveyed by Koyfin, seven rate the stock a Strong Buy, 18 call it a Buy, and only six say it's a hold. That's good enough for an overall Strong Buy rating on ADBE from Koyfin.

Alphabet

• Sector: Communication services
• Industry: Internet content & information
• Market value: $1.9 trillion
• Consensus analyst rating: Strong Buy (48 analysts)

Alphabet (GOOGL, $2,861.80), with its Google Cloud services already achieving $13 billion in annual revenue, is the third-largest cloud computing company in the world.

In fact, it falls in line right behind Amazon.com's (AMZN) Amazon Web Services and Microsoft's (MSFT) Azure. However, Alphabet is the only one of the "Big Three" to make this list of best cloud stocks due to solid financials pointing to a rosy future.

CEO Sundar Pichai highlights three reasons why momentum in cloud is likely to continue in 2022 and beyond. These include the company's leadership in real-time data, analytics and artificial intelligence (AI); an open, scalable infrastructure; and Google's ability to protect data against the rise in cybersecurity threats.

Not only that, but as far as Google Cloud's sustainability goes, Pichai reminded investors on the earnings call that its customers benefit from operating on "the world's cleanest cloud," with "two-thirds of the electricity consumed by Google data centers in 2020 ... matched with local carbon-free sources on an hourly basis." The company plans on running its data centers and campusees with carbon-free energy by 2030.

Analysts are certainly all-in on GOOGL. The stock is rated an overall Strong Buy by Koyfin's survey of 48 analysts. Fifteen of them rate shares a Strong Buy, 32 rate GOOGL a Buy and one rates it a Hold. None say it's a Sell or Strong Sell.

Put it all together and it's no surprise that Wedbush analysts Ygal Arounian and Chad Larkin (Outperform) say that "Google Cloud remains in very early stages with a long runway. We see upside to revenue estimates and even more so in margins in 2022-2023."

DigitalOcean Holdings

• Sector: Information technology
• Industry: IT services
• Market value: $6.1 billion
• Consensus analyst rating: Strong Buy (10 analysts)

With the smallest market value of all the cloud stocks covered here, DigitalOcean Holdings (DOCN, $53.67) might also be the most exciting.

Of the 10 analysts surveyed by Koyfin, three consider the stock a Strong Buy, five call it a Buy and only two think it's a Hold. Not one of the analysts surveyed considers the stock a Sell or Strong Sell. That all adds up to an overall Strong Buy from Koyfin.

DOCN was founded in 2012, and is an up-and-comer in the cloud computing space. To be more specific, DigitalOcean offers a cloud computing platform for developers, start-ups and small-to-medium size businesses. Its customers use the platform for everything from web and mobile applications to website hosting, e-commerce, media and gaming, personal web projects, managed services and more.

"Annual run-rate revenue increased sharply throughout 2021, and the company’s revenue growth has accelerated throughout the year," say William Blair analysts Jim Breen and Erik Rayner (Outperform). "We expect the company to sustain a 30%-plus growth rate in 2022 with multiple levers to drive growth going forward."

Additionally, following meetings with DigitalOcean CEO Yancey Spruill, Chief Financial Officer Bill Sorenson and Vice President of Investor Relations Rob Bradley, the two "came away incrementally positive on the long-term opportunity the company has." Not only that, but they believe the company's "shares are undervalued given the growth opportunity."

In other words, DOCN is one of the best cloud stocks for investors to keep watch in 2022.