3 Underperforming Cloud Stocks That Could Be Worth the Risk Right Now

Barchart · 10/16 14:30

While major stock market benchmarks - including the S&P 500 Index ($SPX) and the Dow Jones Industrial Average ($DOWI) - are hovering near all-time highs, many individual stocks are still trading at a discount from their own record levels. That includes software stocks, most of which have significantly lagged the broader market this year.

However, for investors willing to “lean into more risk,” here are three underperforming cloud stocks that look like solid long-term investments in October 2024, according to investment bank Piper Sandler. Let’s see why.

#1. MongoDB Stock

Valued at $20.8 billion by market cap, MongoDB (MDB) provides enterprises with a general-purpose database platform. Its commercial data server can run in the cloud, on-premise, or in a hybrid environment. MongoDB also offers the MongoDB Atlas, a multi-cloud database-as-a-service solution.

Down 51% from all-time highs, MDB stock has returned 126% to investors in the last five years.

In fiscal Q2 of 2025 (ended in July), MongoDB reported revenue of $478.1 million, an increase of 13% year over year. The Atlas platform saw sales rise by 27% to $339.7 million, accounting for 71% of the top line.

With more than $1.3 billion in cash, MongoDB is well capitalized, as the company continues to report a positive free cash flow. In the last 12 months, its free cash flow totaled $149 million, up from $115 million in fiscal 2024. Further, MongoDB increased its customer count from 45,000 to 50,700 in the last four quarters.

Piper Sandler believes that MongoDB is positioned to experience accelerated growth going forward, after hitting a trough in the second quarter. It has an “Overweight” rating on MongoDB, with the target price of $335 indicating an upside potential of over 21% from current levels.

Out of the 31 analysts covering MDB stock, 22 recommend “strong buy,” three recommend “moderate buy,” five recommend “hold,” and one recommends “strong sell,” for a “strong buy” consensus. The average target price for MDB stock is $334.07, about 21% higher than current levels.

#2. Adobe Systems Stock

Valued at $224 billion by market cap, Adobe Systems (ADBE) provides digital marketing and media solutions.

Adobe’s suite of graphic design solutions is already popular among users, and it might gain further traction due to the tech giant’s generative AI model called Firefly. Today, Firefly has created over 12 billion images and will soon launch a version that can be used for video.

With gross margins of over 90% and a net margin north of 30%, Adobe is highly profitable. However, in the last 12 months, it has reported a free cash flow of $6.55 billion, down from $6.9 billion in 2023, driving the tech stock lower.

Down 27.4% from all-time highs, Piper Sandler expects ADBE stock to recover its losses in 2024 due to the software company's AI-powered offerings. In an investor note, the firm wrote, “The new innovation product cycle is underappreciated, and could help reignite growth.”

Piper Sandler is “Overweight” on Adobe with a target price of $635, indicating an upside potential of 26.5%.

Out of the 31 analysts covering ADBE stock, 22 recommend “strong buy,” one recommends “moderate buy,” six recommend “hold,” and two recommend “strong sell.” The average target price for ADBE stock is $611, 21.7% higher than the current trading price.

#3. Salesforce Stock

Finally we have Salesforce (CRM), one of the largest SaaS (software-as-a-service) companies globally. Salesforce stock is valued at $279.4 billion by market cap, and is down 9.5% from record levels.

Salesforce's revenue has increased from $21.1 billion in fiscal 2021 (which ended in January) to $36.46 billion in the last 12 months. In this period, operating income has grown over 12x from $455 million to $6.95 billion, while free cash flow has widened from $4 billion to $11.46 billion.

Piper Sandler has an “Overweight” rating on CRM stock with a target price of $325, 12% higher than the current price. It also has a bull-case price target of $405, indicating an upside potential of almost 40%. Piper Sandler explained that Salesforce has outperformed the broader indices in the last three months due to consistent revenue growth and expanding margins.

Out of the 42 analysts covering CRM stock, 30 recommend “strong buy,” two recommend “moderate buy,” nine recommend “hold,” and one recommends “strong sell.” CRM is now a “strong buy” on Wall Street, up from “moderate buy” one month ago. The average target price for CRM stock is $309.82, about 6.8% higher than the current trading price.

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.