It’s a big week on the earnings calendar for cloud stocks.
Salesforce (NYSE: CRM) shares jumped 26% on Wednesday after the enterprise-software company delivered a second quarter earnings beat.
Box (NYSE: BOX) shares also rose Wednesday as the cloud-based enterprise solutions company posted better-than-expected earnings, reported an 11% surge in revenue to $192.3 million.
“We are obviously super happy with a dramatic improvement in profitability and operating profits, given a very dynamic and complicated [financial and health] climate,” said Box CEO Aaron Levie. “But we need to remain laser-focused on the second half of the year, especially with our enterprise suites.”
But one among the cloud bunch stands out: Palo Alto Networks (NYSE: PANW).
Palo Alto reported its fiscal fourth quarter results on Monday, posting earnings per share of $1.48 on revenue of $950.4 million, compared to estimates for earnings per share of $1.39 on revenue of $924 million.
Looking at the stock’s chart, Piper Sandler chief market technician Craig Johnson said, “the stars and moon are aligned here. On the chart, this looks like one of those inverted head-and-shoulder bottoms from a technical perspective. You’ve got a neckline at $250. We’ve broken out and started another leg higher.”
Pointing Loop Capital Markets initiation of coverage on the stock late last week with a Buy rating, Johnson said, “From a fundamental perspective, [we] certainly like the upgrade from Loop… but got to really give the hat tip to Rob Owens here at Piper Sandler who upgraded the stock on March 22 with a $280 target. So, good-looking stock, breaking out, I’d be buying the breakout here at Palo Alto ahead of the quarter.”
As for the industry as a whole, Steve Chiavarone, portfolio manager at Federated Hermes, sees multiple tailwinds for cloud stocks that are keeping him bullish.
“The Bureau of Economic Analysis showed that for the first time ever, the percentage of business spending on digital investments like software and R&D has eclipsed physical investments in a trend that’s been taking place for the better part of five years but really kind of took hold in the first quarter of this year with the pandemic,” Chiavarone said, adding that he expects cloud companies with a focus on infrastructure software, remote work, security, and digital commerce to outperform.
“The pricing model here is also a plus,” Chiavarone continued. “A lot of these companies offer subscription models, which are stable relative to having to acquire new customers. And so for those reasons, plus the fact that these companies are generating a ton of cash flow, we think the cloud space still makes a lot of sense.”