Fears of Slowing Growth in the Cloud Space are Overrated

One of the biggest trends of the past few years has been the rise of companies using cloud-based services. That bypasses the need for a company to run its own data centers, and has created some powerhouse firms.

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  • However, in the short-run, fears of slow growth can lead to major selloffs in cloud-based companies, which in turn can spell a long-term entry point for patient buyers.

    Case in point? Snowflake (SNOW). The cloud storage giant has seen its shares shed one-third of their peak value since last December. Shares have been declining recently ahead of earnings, on concerns of a significant slowdown in growth.

    Admittedly, the company is still far from profitability, as many tech firms are. But with the company’s revenues up more than 110 percent in the past year, the firm can weather even a modest slowdown in growth and still be on track to head towards profitability.

    Action to take: Shares look potentially attractive under $275 for longer-term investors. At that price, they’re well off the speculative highs with room to grow in the years ahead. Of course, it’s far too early for the company to start paying dividends.

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  • For traders, look for a reversal first, which is potentially capable of occurring right after earnings drop this week. At that point, a trade like the January $300 calls, last going for about $21.50, could be a solid winner in the months ahead.


    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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