These stocks are inexpensive and the companies should grow for many years to come.

Given the huge drawdown so far this year in technology stocks — the First Trust Cloud Computing ETF is down 35% so far this year — now could be a great time to reorganize your portfolio while some quality cloud companies are trading on the cheap.

Here are three top cloud stocks with great long-term potential that look like great buys this month. 1. Autodesk is transitioning

Autodesk ( ADSK -1.31%) is a software provider for the architecture, engineering, construction, and media industries. Founded in 1982, the company has been making the transition over the last decade to a cloud-based subscription model.

For example, Fusion 360 is Autodesk’s new manufacturing and mechanical engineering cloud platform that is disrupting the traditional computer-aided design and manufacturing market. The service has 205,000 paying subscribers, up from less than 100,000 two years ago. Management has said it is looking to reorganize all of its software programs to the Fusion 360 model — cloud-based annual subscriptions.

With a long runway ahead in the transition to cloud-based subscription products, Autodesk looks set to grow its revenue at a high rate for years to come. At a market cap of $43.9 billion, the stock trades at a forward price-to-free cash flow (P/FCF) ratio of 21.5 based on the midpoint of its guidance. P/FCF is the best metric to use to evaluate Autodesk stock because of all the deferred revenue that gets lost when looking at its GAAP (unadjusted) earnings numbers. Deferred revenue is revenue received for products or services to be delivered in the future.

The current P/FCF multiple is a reasonable price to pay for a company with as much growth potential as Autodesk and is right around the market’s long-term average. 2. Amazon is dominating

Second on my list is cloud pioneer and leader Amazon ( AMZN -2.99%). Its Amazon Web Services (AWS) division is massive and has created a ton of value for Amazon shareholders over the past decade.

In the most recent quarter, AWS did $19.7 billion in sales, which equates to an annual run rate of $78.8 billion. With operating margin close to 30% (depending on the quarter), the division looks to be on pace to generate close to $24 billion in operating income for Amazon this year. And the party looks to be just getting started as estimates expect the cloud infrastructure market to grow at a 15% to 20% compound annual growth rate (CAGR) through 2028.

With high profit margins, AWS growth could be extremely lucrative for Amazon shareholders, making it worth buying even with the stock trading at a trailing P/FCF of 240.

If you want to own the leading infrastructure provider for the cloud software market, keep things simple and buy shares of Amazon. 3. Zoom Video Communications is expanding what it offers

Last on my list is a stock that soared during the early days of the pandemic: Zoom Video Communications ( ZM -1.49%). Shares of the company jumped in 2020 with the work-from-home boom, but are down 71% in the past year. However, the video conferencing business still looks to be in a healthy place.

Last quarter, revenue grew 8% year over year to $1.1 billion. Under the hood, some of its other segments are growing even faster. Revenue from its “enterprise” customers — the ones that have “been engaged by either Zoom’s direct sales team, channel partners or independent software vendor partners” — was up 27% year over year to $599 million, which was 54% of total revenue.

This highly reliable revenue will be important for Zoom’s growth going forward as it tries to land larger companies and get them to switch away from Microsoft or Cisco products.

Zoom is succeeding by expanding outside of just video conferencing software. Zoom Phone has grown the number of accounts with more than 10,000 users by over 100% in the past year and it now has 4 million seats. While still a small part of Zoom’s business, this enterprise phone product should be an easy upsell to existing customers as it tries to disrupt legacy communication systems within the business world.

This fiscal year, Zoom is guiding for $4.39 billion in revenue and $1.45 billion in adjusted operating income at the midpoint of its guidance. Adjusted operating income is the best metric for evaluating the true earnings power of Zoom’s business because it excludes one-time and non-cash expenses. With a market cap of $24 billion, that gives the stock a forward price-to-operating income (P/OI) […]

source 3 Top Cloud Stocks to Buy in September

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