4 Overvalued Cloud Stocks To Avoid In June

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COVID-19-pandemic-led restrictions heightened demand for cloud-based services from most industries last year. And the future looks promising for the cloud industry due to continuing advancements in the artificial intelligence (AI) and machine learning (ML) space and rapid deployment of 5G, among other factors. According to Fortune Business Insights, the global cloud computing market is expected to grow at a 17.9% CAGR  between 2021- 2028.

However, amid the ongoing economic recovery, investors are rotating away from expensive tech stocks to capitalize on the higher growth potential of cyclical stocks, which is pushing some super expensive cloud stocks out of investors’ portfolios. This is evident in the First Trust Cloud Computing ETF’s (SKYY) 0.1% loss over the past three months versus the SPDR S&P 500 Trust ETF’s (SPY) 9.8% gains.

The sky-high valuations of Zoom Video Communications, Inc. (ZM), Snowflake Inc. (SNOW), Veeva Systems Inc. (VEEV), and Okta, Inc.’s (OKTA), for example, don’t justify their recent financial performance and growth prospects. So, we think these stocks could continue retreating in the near-term.

Zoom Video Communications, Inc. (ZM)

ZM is a popular video-first global communications platform whose solution includes Zoom Meetings that offers HD video, voice chat, and content sharing through mobile devices, desktops, laptops, and conference room systems. It also provides Zoom Rooms, Zoom Conference Room Connector, Zoom Video Webinars, and Zoom Hardware-as-a-Service, among other services.

Law firm Bragar Eagel & Squire is investigating certain officers and directors of ZM following a class action complaint that was filed against it on April 7, 2020. It is alleged that the company made materially false and misleading statements regarding its business, operational, and compliance policies.

For its fiscal first quarter, ended April 30, ZM’s revenue increased 191.4% year-over-year to $956.24 million. However, the company’s operating expenses for the quarter increased 131.2% year-over-year to $464.93 million. And its total liabilities grew 18% year-over-year to $1.69 billion.

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