Cloud computing stocks are experiencing a resurgence in 2024, marking a significant turnaround from the bear market of the past couple of years. While artificial intelligence (AI) continues to dominate headlines, it’s important to recognize that cloud software has been consistently growing, even during times of investor concern. In fact, global spending on cloud computing has continued to rise. According to Gartner, end-user spending on cloud services is expected to reach $680 billion in 2024, up from an estimated $411 billion in 2021.
Contrary to popular belief, traditional cloud services are also seeing an increase in demand. As new use cases emerge, the need for effective monitoring and secure management of IT processes grows. This trend is evident in recent developments such as the mega-merger between chip design company Broadcom and cloud software management business VMware, as well as the bid from networking hardware giant Cisco Systems to acquire Splunk for its cloud and network monitoring services.
This wave of cloud spending is particularly benefiting smaller software companies, particularly those specializing in security and analytics. One notable player in this space is Dynatrace (NYSE: DT), a company that has been steadily achieving profitable growth since its initial public offering in 2019. Dynatrace offers cloud observability and application performance monitoring (APM) software to some of the world’s largest organizations. Its software, powered by the AI assistant “Davis,” excels in identifying bottlenecks, trouble spots, and security vulnerabilities in complex computing systems.
Dynatrace recently made a strategic acquisition of an AI start-up called Runecast, further enhancing its offerings in hybrid cloud security and compliance. This move highlights the company’s commitment to meeting the evolving needs of large organizations that require flexibility in managing their data and proprietary apps in private data centers.
In terms of financial performance, Dynatrace has seen steady revenue growth, hovering around 20% year-over-year, with a net income margin of 11.7% and a free cash flow margin of 18%. While the stock may have a high premium, reflecting the market’s expectations for the growth potential of cloud observability and APM, the company’s strong execution and financial position are encouraging.
Investing in Dynatrace may involve volatility, given the premium price, but a dollar-cost-averaging plan can help mitigate this risk. With a solid growth strategy and a track record of success, Dynatrace is well-positioned to capitalize on the growing demand for cloud computing software.
Please note: The Motley Fool Stock Advisor does not list Dynatrace as one of their top 10 stock picks.
Key Terms:
1. Cloud computing: The practice of using a network of remote servers hosted on the internet to store, manage, and process data, rather than using a local server or personal computer.
2. Artificial intelligence (AI): The simulation of human intelligence in machines that are programmed to think and learn like humans.
3. End-user spending: The amount of money spent by individual consumers or organizations on products or services.
4. Cloud services: Services provided over the internet, such as servers, storage, and software, that can be accessed remotely.
5. Chip design: The process of creating integrated circuits or chips that serve as the building blocks of electronic devices.
6. Network monitoring: The process of monitoring and analyzing network traffic to ensure optimal performance, security, and availability.
7. Software-as-a-Service (SaaS): A software licensing and delivery model in which software is accessed online via a subscription rather than being installed on individual computers.
8. Application performance monitoring (APM): The practice of monitoring and analyzing the performance of software applications to identify and resolve any issues or bottlenecks.
9. Hybrid cloud: A combination of public and private cloud resources used to support an organization’s IT infrastructure.
10. AI start-up: A newly established company that focuses on developing and commercializing artificial intelligence technologies.
FAQ:
1. What is cloud computing, and why is it experiencing a resurgence in the stock market?
Cloud computing is the practice of using remote servers hosted on the internet to store, manage, and process data. It is experiencing a resurgence in the stock market due to its consistent growth and increasing demand for cloud services.
2. How much is expected to be spent on cloud services in 2024?
End-user spending on cloud services is expected to reach $680 billion in 2024, according to Gartner.
3. Are traditional cloud services also seeing an increase in demand?
Yes, traditional cloud services are experiencing an increase in demand as new use cases emerge and the need for effective monitoring and secure management of IT processes grows.
4. Which companies are benefiting from the wave of cloud spending?
Smaller software companies specializing in security and analytics are particularly benefiting from the wave of cloud spending. One notable player in this space is Dynatrace.
5. What does Dynatrace offer in terms of cloud software?
Dynatrace offers cloud observability and application performance monitoring (APM) software. It uses AI to identify bottlenecks, trouble spots, and security vulnerabilities in complex computing systems.
6. What recent acquisition did Dynatrace make?
Dynatrace recently made a strategic acquisition of an AI start-up called Runecast, which enhances its offerings in hybrid cloud security and compliance.
7. How has Dynatrace performed financially?
Dynatrace has seen steady revenue growth of around 20% year-over-year. It has a net income margin of 11.7% and a free cash flow margin of 18%.
8. Is investing in Dynatrace considered risky?
Investing in Dynatrace may involve volatility, given the high premium price of the stock. However, a dollar-cost-averaging plan can help mitigate this risk.
9. Is Dynatrace listed as one of the top stock picks by The Motley Fool Stock Advisor?
No, The Motley Fool Stock Advisor does not list Dynatrace as one of their top 10 stock picks.
Related Links:
– Dynatrace: Official website of Dynatrace, the company mentioned in the article.
– Gartner: Gartner’s website, a leading research and advisory firm specializing in IT-related insights.
– Broadcom: Official website of Broadcom, the chip design company mentioned in the article.
– VMware: Official website of VMware, the cloud software management business mentioned in the article.
– Cisco Systems: Official website of Cisco Systems, the networking hardware giant mentioned in the article.
– Splunk: Official website of Splunk, the company known for its cloud and network monitoring services mentioned in the article.
Wanda Parisien is a computing expert who navigates the vast landscape of hardware and software. With a focus on computer technology, software development, and industry trends, Wanda delivers informative content, tutorials, and analyses to keep readers updated on the latest in the world of computing.
