3 High-Growth SaaS Stocks to Watch in the Cloud Computing Boom

As cloud computing revolutionizes every industry and organization, it’s important to consider which software-as-a-service (SaaS) stocks to buy as more workloads migrate to the cloud over the next decade.

There has been a significant shift to the cloud in recent years from legacy on-premise workloads and infrastructure. Cloud computing allows organizations to rent rather than buy IT and other functions. Given the cost savings, scalability, flexibility, productivity gains and improved security features, it’s obvious why this shift is happening.

Over the 2021- 2026 period, IDC forecasts cloud spending to have a compound annual growth rate (CAGR) of 12.9%. SaaS companies deliver computing services like networking, servers, storage and analytics over the cloud.

These cloud computing advantages mean more workloads will continue moving to the cloud. SaaS growth stocks are expanding despite the current macro uncertainty. IT service management giant ServiceNow (NYSE:NOW) has been one of the best SaaS growth stocks to own. Over the last decade, it has grown revenues by 27x. The company is a leader in the cloud-based IT service management and digital workflow solutions sphere. Its software helps businesses streamline operations, automate workflows and improve customer experience.

The company’s financial performance has been strong. In the recent quarter the company grew revenues by 24% year-over-year. Adding to the stellar growth, the company is profitable and in excellent financial shape. It reported a healthy 35% free cash flow margin, which ranks in the top quartile among SaaS growth stocks.

In terms of market opportunity, Snowflake (NYSE:SNOW) is one of the most exciting SaaS stocks to buy. Data migration to the cloud is a secular trend that will support growth for years. Snowflake is a cloud-based data warehousing, processing and analytics company. Their data platform provides businesses with a scalable and flexible service for managing their data. It enables organizations to store, analyze and share large amounts of data in real-time, helping them to make better decisions and improve their operations.

Over the last five years, it has reported a net revenue retention rate above 150%. This ability to keep and expand clients makes it one of the top SaaS stocks to buy as it remains on track to achieve its target of $10 billion in product revenue by FY2029. Its platform capabilities are critical for any enterprise, and it has been winning customers in various industries.

Workday (NASDAQ:WDAY) is a cloud-based software company that provides businesses with human capital management, financial management, and analytics solutions. The company’s cloud software help businesses improve their workforce management, financial management and decision-making processes. Workday has a strong market position in the HCM space, with a growing customer base across a range of industries. According to Gartner, the company is a leader in the HCM suite.

It counts many Fortune 500 companies as customers. In Q4 2023, the company hit the 10,000 customers milestone. Revenue increased 19.6% YOY, and Non-GAAP, basic net income per share, was $1.00. The company expects FY2024 revenue of $6.5 billion, a 20% CAGR from FY2020 revenues of $3.10 billion.

There still exists a massive opportunity for Workday. It estimates the total addressable market for the HCM and finance at $52 and $73 billion, respectively. Considering that organizations will continue to modernize HR and finance operations, Workday is one of the top SaaS stocks to buy to play this trend.

Source: InvestorPlace

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