Cloud computing company stocks have fallen a lot in the latest stock market correction that could soon become a bear market which could lead to a full blown panic.
In the heady days for cloud computing stocks since the 2020 coronavirus pandemic eruption it seemed relatively justified from a valuation standpoint for cloud computing stocks to trade at a Price/Sales ratio of 22. I am using the Price/Sales metric since most cloud computing stocks are not profitable. The reason was the high future revenue growth expectations of cloud computing companies driven by the brisk growth of the cloud computing market in general. Ultimately the higher revenue would lead to profits which would be later distributed as dividends to shareholders.
Has the latest stock market, concerning technology stocks in particular, sell off changed the narrative? Not too much, in my opinion. Now cloud computing stocks trade at a Price/Sales ratios of around 17, but still cloud computing is expected to save corporations, governments and individuals time, effort and money. Actually, one could pay per usage of a particular cloud service and this tailor made offering by technology giants like Amazon, Microsoft and Alphabet is proving quite cost efficient and preferred by customers.
The world is moving towards digitalization and cloud computing is just the software that allows that.
In my opinion, if the Nasdaq Composite falls another 10% to 20% from current levels, most cloud computing stocks, especially lesser known and niche cloud startups will become undervalued. A future multi baggers, possibly ten baggers in 10 years time, to use the phrase popularized by Peter Lynch.
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