Cloud computing has helped companies save money and improve efficiency. This technology is the backbone of many corporations and is one of the last expenses these entities will cut. The significance of cloud computing stocks has helped tech stalwarts like Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) power up the S&P 500 and Nasdaq-100 for several years.
While Microsoft and Amazon have been the leaders for many years, other cloud computing companies are catching up. While these companies have less market share than the tech conglomerates, they are gaining momentum.
More importantly, these three stocks have outperformed Microsoft and Amazon. Investors looking to optimize their returns in cloud computing stocks may want to consider these picks.
ServiceNow (NOW)
ServiceNow (NYSE:NOW) is a cloud computing company with over 7,700 global enterprise customers. The company’s software helps corporations streamline their work and stay safe from cyberattacks.
ServiceNow’s $140 billion market cap isn’t in the trillion-dollar territory like Microsoft and Amazon. However, NOW shares have gained 77% year-to-date and have almost quadrupled over the past five years. Shares are closing in on the all-time high they set near the end of 2021.
ServiceNow exhibits high revenue growth rates that are dwarfed by the company’s recent profit expansion. The firm exceeded its guidance in the third quarter and raised its benchmarks for the end of the year. Revenue increased by 25% year-over-year while net income surged by 202.5% year-over-year.
The dramatic growth in net income helped the company achieve a double-digit profit margin. ServiceNow has an impressive 98% renewal rate, which suggests that the rising profit margins and growing revenue are here to stay. ServiceNow can even consider price hikes in the future to drum up more revenue.
Datadog (DDOG)
Datadog (NASDAQ:DDOG) helps business owners stay on top of their cloud infrastructure. Cloud computing software needs effective cybersecurity measures to ensure critical data doesn’t fall into the wrong hands.
Instead of creating a cloud computing solution like AWS or Microsoft Azure, Datadog allows you to watch over those platforms. The company has many high-profile customers including Twilio (NYSE:TWLO), Nasdaq (NASDAQ:NDAQ) and Maersk (OTCMKTS:AMKBY).
DDOG stock has comfortably outperformed the market with a 63.78% year-to-date gain and a 226% increase over the past five years. The company recently flipped the switch to profitability and can see rapid profit expansion in the upcoming quarters. Revenue growth is still looking good as the company posted 25.4% year-over-year growth in the third quarter.
The growth among customers paying over $100,000 in annual recurring revenue is also a good sign. This figure went up from about 2,600 customers to about 3,130 customers in one year. That’s a 20.4% year-over-year growth rate using the estimated figures provided by Datadog.
Zscaler (ZS)
Zscaler (NASDAQ:ZS) is well removed from its all-time high. The stock price has been cut by nearly half but remains one of the top-performing cloud computing stocks in the market. Shares are up by 81% year-to-date and have gained 392% over the past five years.
Zscaler is a cloud security platform that keeps critical documents and data points safe. Corporations can connect it with public and private clouds to enhance their security. Zscaler prevents over nine billion incidents and policy violations per day and processes over 500 trillion daily signals. The firm has helped customers achieve faster user experiences, fewer infected machines and reduced cloud infrastructure costs.
Zscaler is a popular choice that has over 40% of the Fortune 500 companies as its customers. It’s also popular among investors for its high historical returns and impressive top-line growth.
Zscaler recently kicked off its first quarter of fiscal 2024 with 40% year-over-year revenue growth. Billings grew by 34% year-over-year which indicates the revenue growth is sticky. The company also narrowed its net losses. Once this company becomes profitable, it has the potential to rapidly expand profit margins in a short period of time.
On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.