While companies that offer cloud-based services are facing some challenges currently, such as a general tech sell-off and frequent cyber-attacks, the industry is expected to perform well in the long run due to the increasing prevalence of remote working structures. However, not all stocks are expected to benefit from the industry tailwinds. As such, we think it is wise to avoid Lightspeed (LSPD), Anaplan (NYSE:PLAN), and Appian (NASDAQ:APPN) due to their weak financials. Read on to learn why.Companies that provide cloud-based services grew exponentially last year as COVID-19-pandemic-led restrictions compelled most businesses to operate remotely. With continuing innovation in the fields of artificial intelligence (AI) and machine learning (ML), among others, the cloud industry is expected to gain in the long-term also. According to Fortune Business Insights, the global cloud computing market is expected to grow at a 17.9% CAGR between 2021- 2028.
Nevertheless, investors are rotating away from expensive tech stocks into cyclical stocks amid the economic recovery and this is driving cloud stocks to weak performances as well. This is evident in First Trust Cloud Computing ETF’s (SKYY) 1.9% loss over the past three months versus the SPDR S&P 500 ETF’s (SPY) 10.4% gains. Also, companies that offer cloud-based services face privacy and security concerns regarding data losses, data breaches, application vulnerabilities and online cyber-attacks.
With increasing competition in the cloud space, not all stocks are great buys. So, we think fundamentally weak cloud stocks Lightspeed POS Inc. (LSPD), Anaplan, Inc. (PLAN), and Appian Corporation (APPN) are best avoided now.