SNOW, ADBE, or AMZN: Which Cloud Stock Earns Wall Street’s “Strong Buy” Rating?

After benefiting from the accelerated shift of enterprises to the cloud during the pandemic, cloud companies have been under pressure over recent quarters due to the impact of economic headwinds on clients’ budgets. Research firm Gartner expects public cloud spending to grow 20.7% to $591.8 billion in 2023. While Gartner’s vice president Sid Nag acknowledges the impact of the ongoing macro uncertainties, he believes “Cloud migration is not stopping.” With that thought in mind, we used TipRanks’ Stock Comparison Tool to pit Snowflake (NYSE:SNOW), Adobe (NASDAQ:ADBE), and Amazon (NASDAQ:AMZN) against each other to pick Wall Street’s favorite cloud stock.

Snowflake (NYSE:SNOW)

Cloud-based data warehousing company Snowflake recently reported better-than-anticipated fourth-quarter results. However, the company’s revenue outlook disappointed investors. Snowflake’s revenue increased 69% to $2.07 billion in FY23, marking a notable deceleration from the 106% growth in FY22.

Snowflake expects its product revenue, which accounted for 94% of its overall revenue in the previous year, to grow 40% to $2.705 billion in FY24, compared to 70% in FY23. It had initially projected 47% product revenue growth. Management cited the change in “existing customer purchasing behavior,” lower-than-projected new logo bookings, and slower growth from youngest cohorts as the reasons for its revised outlook. 

Nonetheless, management is confident about meeting its $10 billion product revenue goal in FY29.    

Is SNOW a Good Buy?

William Blair analyst Kamil Mielczarek noted that macro pressures weighed on customer expansion and adversely impacted Snowflake’s business. He added that newer cohorts also expanded at a slower pace than the rate seen in prior years, although the slowdown was “less pronounced among larger customers.” Moreover, net revenue retention rate of 158% as of Q4 FY23-end also slowed down compared to 165% in the prior quarter.

That said, Mielczarek reaffirmed a Buy rating on Snowflake stock, saying, “We have confidence in Snowflake’s ability to continue to take share and reach its long-term growth targets, and see the potential for free-cash-flow margin to reach 30% in coming years.”

Overall, Wall Street has a Moderate Buy consensus rating based on 21 Buys, six Holds, and one Sell. The average price target of $182.56 suggests about 28% upside. Shares are essentially flat compared to the start of this year.

Adobe (NASDAQ:ADBE)

Creative software and document-management company Adobe rapidly transitioned from the desktop to the cloud over recent years. The company’s revenue grew 12% to $17.6 billion in FY22 (ended December 2, 2022), while adjusted EPS increased 10% to $13.71.

The company expects its FY23 revenue in the range of $19.1 billion to $19.3 billion and adjusted EPS between $15.15 and $15.45. While macro pressures might impact growth rates over the near term, the company is positive about the long-term potential of its Creative Cloud, Document Cloud, and Experience Cloud offerings.   

Currently, Adobe stock is under pressure due to the regulatory roadblocks related to the proposed acquisition of design software startup Figma for about $20 billion.

What is the Price Target for Adobe Stock?

This week, Deutsche Bank analyst Brad Zelnick reiterated a Buy rating on Adobe as he believes that generative artificial intelligence (AI) opportunities will drive double-digit revenue growth in the upcoming years.

“We believe generative AI will be a powerful tool in the belt of creative professionals, communicators, and consumers going forward, enabling Adobe to more deeply penetrate its existing TAM [total addressable market] by making Adobe products not just essential to creative pros, but to further involve other stakeholders in the content-creation process,” said Zelnick.

Wall Street’s Moderate Buy consensus rating for Adobe is backed by nine Buys and 14 Holds. ADBE stock has risen nearly 3% year-to-date. The average price target of $377.37 implies 9.1% upside.  

Amazon (NASDAQ:AMZN)

Macro challenges significantly impacted Amazon’s e-commerce and cloud computing Amazon Web Services (AWS) businesses. AWS revenue growth slowed down to 20% in Q4 2022 from 27% and 33% in Q3 and Q2 2022, respectively. Nonetheless, the higher-margin AWS division has been relatively resilient compared to Amazon’s e-commerce business.

During the Q4 2022 earnings call, management noted that enterprises of all sizes are optimizing their cloud spending in response to difficult macro conditions, which is slowing down AWS’s growth. Further, the company cautioned that these optimization efforts will continue to be a headwind to AWS growth for at least the next couple of quarters.

Amazon stated that AWS revenue growth was in the mid-teens in January. Nonetheless, the company assured that its new customer pipeline remains “healthy and robust,” and there are many customers who intend to migrate to the cloud and “commit to AWS over the long term.” It’s worth noting that AWS remains the leader in the cloud infrastructure space, followed by Microsoft Azure (MSFT) and Alphabet’s (GOOGL) (GOOG) Google Cloud.

Is Amazon a Buy, Sell, or Hold?

In a note on the top picks in the internet sector, Goldman Sachs analyst Eric Sheridan called Amazon “solidly our top pick for the remainder of 2023 from current trading levels.” The analyst remains optimistic about AWS and feels that a potential shift in the path of AWS growth could be a catalyst for the stock this year.

“In particular to AMZN, any visibility into a bottoming of AWS growth would likely be a key catalyst for the shares & increased industry conversations in the past few weeks point to signs that the optimization theme (in terms of changed customer behavior) may have peaked around 2023 economic concerns and budget planning in late 2022,” said Sheridan.

Amazon earns a Strong Buy consensus rating based on 36 Buys and two Holds. The average AMZN stock price target of $137.05 suggests nearly 46% upside potential. Shares have advanced 12% since the start of the year.

Conclusion

Macro pressures are expected to weigh on cloud stocks over the near team. Nevertheless, Wall Street is more bullish about Amazon compared to Snowflake and Adobe. Analysts continue to believe in Amazon’s long-term potential based on its dominant position in the e-commerce and cloud computing space and the growing advertising business.

As per TipRanks Smart Score System, Amazon has a score of nine out of 10, indicating that the stock has the capability to outperform the broader market over the long term.

Disclosure