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Just last week, amidst a relatively sharp -8% correction in the S&P 500, investors were certain that something in the market was about to break. Three days later and stocks are suddenly screaming higher. What happened?
Admittedly, interest rates on long-term treasuries were reaching 16-year highs, and the Fed was sounding increasingly hawkish, but the signs of an imminent rally were forming. I personally noted a key technical level holding in the Nasdaq 100, sentiment was loudly bearish, and seasonality trends were strongly in favor of a bullish second half of October and Q4.
Dovishness on the Rise
Furthermore, several other Zacks analysts were growing increasingly bullish, and most importantly, Fed Funds futures markets were quickly drifting more dovish. As of today, the market is pricing in three rate hikes in 2024, while just a week ago it was just one.
Forget Fear – Plan for the Future
Now that we have moved past the extreme bearishness, investors should again focus on long-term trends rather than week-to-week moves. The market consistently climbs the wall of worry. And don't forget it.
So where should investors look for big trends? Cloud computing and the services surrounding it is one of the fastest growing segments in the market, and with the explosion in Artificial Intelligence that trend may begin to accelerate. The Cloud Services market is projected to grow at a CAGR of 17% over the next 10 years.
Cloud Services
Amazonis the industry's first mover and market share leader, while Alphabet is the fastest growing of the big players.
Alphabet recently notched near 30% YoY revenue growth in its cloud services segment and expects EPS to grow 15.3% annually over the next 3-5 years.
Amazon enjoys a Zacks Rank #1 (Strong Buy) rating as well, with analysts unanimously raising earnings estimates across timeframes. EPS are forecast to grow an incredible 34% annually over the next 3-5 years.
I also have my eye on the descending wedge breakout in AMZN stock.
Cloud Security
Cloudflare, CrowdStrike and Zscaler are all cloud-based security solutions. CrowdStrike has a Zacks Rank #2 (Buy) rating, reflecting upward trending earnings revisions, and sales growth estimates of 35% in FY23.
Cloudflare expects to grow its EPS at 54% annually over the next 3-5 years and Zscaler is projecting 40% annual growth in EPS.
The breakout in CrowdStrike stock this week was emphatic.
Bottom Line
While some of the direct AI investments may be a bit extended at this point, utilizing a picks and axes approach to investing in the sector may be the way to catch the next major leg higher.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Amazon, Alphabet, Cloudflare, CrowdStrike and Zscaler
For Immediate Release
Chicago, IL – October 11, 2023 – Today, Zacks Investment Ideas feature highlights Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , Cloudflare (NET - Free Report) , CrowdStrike (CRWD - Free Report) and Zscaler (ZS - Free Report) .
Cloud Services: Key to Outperformance in 2024?
Prepare for a Strong Q4
Just last week, amidst a relatively sharp -8% correction in the S&P 500, investors were certain that something in the market was about to break. Three days later and stocks are suddenly screaming higher. What happened?
Admittedly, interest rates on long-term treasuries were reaching 16-year highs, and the Fed was sounding increasingly hawkish, but the signs of an imminent rally were forming. I personally noted a key technical level holding in the Nasdaq 100, sentiment was loudly bearish, and seasonality trends were strongly in favor of a bullish second half of October and Q4.
Dovishness on the Rise
Furthermore, several other Zacks analysts were growing increasingly bullish, and most importantly, Fed Funds futures markets were quickly drifting more dovish. As of today, the market is pricing in three rate hikes in 2024, while just a week ago it was just one.
Forget Fear – Plan for the Future
Now that we have moved past the extreme bearishness, investors should again focus on long-term trends rather than week-to-week moves. The market consistently climbs the wall of worry. And don't forget it.
So where should investors look for big trends? Cloud computing and the services surrounding it is one of the fastest growing segments in the market, and with the explosion in Artificial Intelligence that trend may begin to accelerate. The Cloud Services market is projected to grow at a CAGR of 17% over the next 10 years.
Cloud Services
Amazonis the industry's first mover and market share leader, while Alphabet is the fastest growing of the big players.
Alphabet recently notched near 30% YoY revenue growth in its cloud services segment and expects EPS to grow 15.3% annually over the next 3-5 years.
Amazon enjoys a Zacks Rank #1 (Strong Buy) rating as well, with analysts unanimously raising earnings estimates across timeframes. EPS are forecast to grow an incredible 34% annually over the next 3-5 years.
I also have my eye on the descending wedge breakout in AMZN stock.
Cloud Security
Cloudflare, CrowdStrike and Zscaler are all cloud-based security solutions. CrowdStrike has a Zacks Rank #2 (Buy) rating, reflecting upward trending earnings revisions, and sales growth estimates of 35% in FY23.
Cloudflare expects to grow its EPS at 54% annually over the next 3-5 years and Zscaler is projecting 40% annual growth in EPS.
The breakout in CrowdStrike stock this week was emphatic.
Bottom Line
While some of the direct AI investments may be a bit extended at this point, utilizing a picks and axes approach to investing in the sector may be the way to catch the next major leg higher.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Zacks Investment Research
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.