The “roller coaster ride” for cloud stocks is nearing its end, potentially opening up a buying opportunity for investors, according to Bernstein. “Although the ride can turn stomachs, we begin reporting today and remind ourselves that even the scariest coasters, when built well, roll up,” analyst Peter Weed wrote in a note to clients on Tuesday. “Cloud SaaS’ wild ride appears closer to a bottom relative to historical markers, including evidence of strong fundamentals versus investor desire: a growing cash engine.” Weed began reporting on Datadog, ServiceNow and Atlassian with outperform ratings, noting that all three stocks are underrated by Wall Street analysts. “NOW and TEAM (Outperform) are ‘value’ stories in our growth sector – long-term strong track records that we expect to continue, each with a performance aspect that is underappreciated by the street,” Weed said. ServiceNow and Atlassian shares are down about 33% and 50%, respectively, this year, but significant growth could lie ahead for both stocks. Weed has given ServiceNow a price target of $646, which implies a potential return of 48% as of Tuesday’s close. With a price target of $257, Atlassian’s stock could gain another 34%. Weed named Datadog the company’s top pick in the industry based on its strong CAGR, pre-pandemic growth rates, and growing overall market. He expects sales to rise as the company launches projects stymied by Covid-19 and customers grow as the shift to IT cloud gathers momentum. “While we recognize this is a high valuation, we remind investors that Datadog has been one of the most exciting growth stories in the public market since its IPO,” he wrote. “Even in the face of headwinds from COVID growth, it remained one of the fastest growing public SaaS providers with year-over-year revenue growth of 50% on >$500 million in revenue.” Datadog stock is up this year down nearly 48% but Weed sees some upside. He set a price target of $172 for the stock, implying a potential rally of 85% from Tuesday’s close. Cloud stocks soared on the onslaught of the pandemic, becoming some of the best-performing stocks as the market recovered from its initial Covid sell-off and climbed to record levels the following year. However, rising rates combined with space growth concerns have resulted in heavy losses for companies in this sector. – CNBC’s Michael Bloom contributed to the coverage
