According to the latest report, at the beginning of this year, the US cloud computing software stocks fell one after another, but now the prices of many stocks have rebounded 50% from the low point. The WisdomTree cloud computing fund has risen 26% in the past three months, compared with the S&P 500’s gain of less than 9%. Still, the cloud index has been underperforming the broader market so far this year.
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While cloud computing stocks were sold off at low prices in the first half of this year, most of the companies behind the stocks are still growing steadily, suggesting the market needs to be strong. The market may have overcorrected, companies are still healthy, and cloud computing stocks will rise again when confidence is restored. That’s why some investors have bet on cloud-computing software stocks over the past few months, looking to make money.
Elliott Robinson, a partner at Bessemer Venture Partners, believes that the market is showing some signs of recovery, and the fundamentals of cloud software companies have not fallen off a cliff.
Shares in GitLab, which provides source code management tools to software developers, plunged 75% between November and April, but the tide began to reverse in June. GitLab’s performance in the fiscal first quarter missed analysts’ expectations, but revenue rose 75% year on year.
“In the short term, demand for GitLab is likely to be more stable relative to discretionary and complex IT solutions, as it can help businesses save costs and improve operational efficiency,” Goldman analysts said in the report.
GitLab’s share price has doubled in the past three months, making it the fastest-growing stock in the WisdomTree fund. Confluent, a maker of data processing software, was the second-fastest, with an 81% increase since mid-May. On August 3, Confluent announced its financial report that revenue in the second quarter increased by 58%, and it is expected to increase by at least 46% this year.
Collaboration software maker Atlassian’s fourth-quarter revenue rose 36%, and the company’s shares rose 67% in three months. Restaurant software developer Toast has seen revenue rise 58% over the same period, and Toast shares have risen 55% since May 12.
The U.S. Bureau of Labor Statistics released news last Wednesday that prices paid by consumers for food and services did not increase as much in July as they did in June. While cloud computing stocks have done well, other sectors haven’t been so lucky, especially those deeply tied to consumers.
Shopify stock has risen less than 30% in the past three months and is still down 77% from its highs. Online retailers use Shopify software to manage payments, inventory, and logistics. Shopify has warned that inflation and higher interest rates could weigh on second-half results.
Investor Jamin Ball from Altimeter Capital said Friday that some buyers are aggressively buying software stocks, and they may be running ahead of reality. Jamin Ball expects the U.S. to enter a recession, cut interest rates next year, and then see inflation ease. “The market seems to be a little too optimistic based on the data we have right now. We’re not in a recession yet, but it’s coming, probably in 2023,” he said.
