With continuing remote working trends and digital transformation, the cloud services industry is expected to grow significantly in the coming months. So, we think it could be wise to add fundamentally strong cloud services stocks Open Text (NASDAQ:) and J2 Global (NASDAQ:) to one’s portfolio now. In contrast, RingCentral (NYSE:) and Synchronoss Technologies (NASDAQ:) look significantly overvalued at their current price levels, so they are best avoided now. Let’s discuss these names.Because the remote working trend and digital transformation are making companies and other organizations vulnerable to cyber-attacks, governments globally have been taking steps to strengthen and secure cloud infrastructure. For example, President Biden signed an Executive Order earlier this year to “move the Federal government to secure cloud services.” Investors’ interest in cloud stocks is evidenced by the First Trust Cloud Computing ETF (SKYY) and the Global X Cloud Computing ETF’s (CLOU) 9.5% and 15.6% price gains, respectively, over the past three months.
Furthermore, consistent innovation in artificial intelligence (AI) and the Internet of Things (IoT) is expected to help drive the growth of the cloud services industry. According to a ResearchAndMarkets report, the global cloud computing market is expected to grow at a 19.1% CAGR to $1,251.09 billion by 2028. However, with increasing competition in the cloud space, not all stocks are good bets now.
Given the favorable backdrop, we think it could be wise to scoop up the shares of quality cloud services stocks Open Text Corporation (OTEX) and J2 Global, Inc. (JCOM), which hold solid growth prospects. Conversely, we think the prices of RingCentral, Inc. (RNG) and Synchronoss Technologies, Inc. (SNCR) have exceeded their intrinsic values, so they are best avoided now.
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