The cloud-first software sector is transforming the tech landscape by offering scalable, cost-effective solutions that cater to modern business needs. Firms in this sector prioritize cloud-native applications, allowing businesses to operate with greater flexibility and efficiency.

As enterprises increasingly adopt cloud-based tools, the demand for such software continues to rise. Therefore, to capitalize on this trend, you might consider scooping up shares of well-positioned cloud-first software stocks, ServiceNow, Inc. (NOW), Adobe Inc. (ADBE), and Twilio Inc. (TWLO) for poised growth.

Cloud-first companies benefit from subscription-based revenue models, which provide predictable income streams and foster long-term customer relationships. This model allows customers to get immediate access to the product when they need it. Further, it also allows for continuous updates and improvements, ensuring that users always have access to the latest features and security enhancements.

Also, the integration of artificial intelligence into cloud-first software is further boosting growth. Firms are leveraging AI to enhance user experiences, from automated meeting summaries to real-time language translations.

The cloud computing market is projected to reach $2.29 trillion by 2032, exhibiting a CAGR of 16.5%. The sector’s focus on scalability, innovation, and customer-centric solutions ensures it remains at the forefront of the tech industry.

That said, Gartner forecasts that the worldwide end-user spending on public cloud services is set to reach $723.40 billion in 2025, up from $595.70 billion in 2024, solidifying its position in the market.

Now, let us dive deep into the fundamentals of the above-mentioned three picks:

ServiceNow, Inc. (NOW)

NOW is a digital workflow company that provides end-to-end intelligent workflow automation platform solutions for digital businesses internationally. The company offers end-to-end digital transformation, artificial intelligence, machine learning, robotic process automation, process mining, performance analytics, and collaboration and development tools through its Now platform.

On January 17, NOW announced the acquisition of Cuein, a leader in AI native conversation data analysis and insights to fuel NOW’s roadmap in agentic AI. This acquisition will help advance NOW’s next-generation AI agents’ ability to understand, process, and transform data from siloed customer interactions across different channels and systems into a comprehensive analysis with actionable insights.

On December 3, 2024, NOW announced an expanded strategic collaboration with Amazon Web Services (AWS) to accelerate AI-driven business transformation across every corner of the enterprise with new capabilities. A new connector enables the seamless use of multimodal models developed and trained on Amazon Bedrock for GenAI-powered workflows in the Now Platform. This collaboration helps boost the development and deployment of GenAI solutions to enterprises.

In the fiscal third quarter that ended on September 30, 2024, NOW’s total revenue increased 22.2% year-over-year to $2.79 billion. The company reported a non-GAAP gross profit of $2.31 billion, indicating a 23.2% increase from the prior-year quarter with a non-GAAP gross margin of 83% (up 100 bps year-over-year). Its non-GAAP operating profit amounted to $872 million, reflecting an increase of 29% from the prior quarter’s value.

NOW’s non-GAAP net income came in at $775 million, up 28.5% year-over-year, while its non-GAAP net income per share grew 27.4% from the year-ago value to $3.72. Also, the non-GAAP free cash flow rose 140.3% year-over-year to $471 million.

As per the financial outlook for the full year 2024, NOW forecasts subscription revenues to be between $10.655 billion and $10.660 billion. The company also expects the non-GAAP free cash flow margin to be approximately 31%.

Analysts expect NOW’s revenue for the fourth quarter ended December 2024 to increase 21.5% year-over-year to $2.96 billion, while its EPS for the same period is expected to grow 17.6% from the prior-year quarter to $3.66. The company surpassed revenue and EPS estimates in each of the trailing four quarters, which is excellent.

Moreover, NOW’s net income has grown at CAGRs of 82.2% and 107.2% over the past three and five years, respectively. In addition, its EBIT increased at 146.3% CAGR over the past five years.

Shares of NOW have surged 57.6% over the past nine months and 48.2% over the past year to close the last trading session at $1140.62.

NOW’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

NOW has a B grade for Growth, Sentiment, and Quality. It is ranked #13 out of 41 stocks in the B-rated Software – Business industry. Click here to see the additional ratings for NOW (Value, Momentum, and Stability).

Adobe Inc. (ADBE)

ADBE operates as a global diversified software company, and its products, services, and solutions are used around the world to imagine, create, manage, deliver, measure, optimize, and engage with content across surfaces and fuel digital experiences. The company operates through three segments: Digital Media; Digital Experience; and Publishing and Advertising.

On December 10, ADBE announced a partnership with Box, Inc. (BOX) to redefine how digital media is managed, created, and shared in the enterprise. This partnership allows every Box user to create and edit visual content directly in Box with Adobe Express as the default image editor.

In the same month, ADBE and Amazon Web Services (AWS) extended their partnership to make Adobe Experience Platform (AEP) available on AWS. This will enable brands to have real-time customer experiences and greater flexibility and personalization at scale with AEP-driven insights and workflows.

During the fourth quarter that ended on November 29, ADBE’s total revenues stood at $5.61 billion, up 11.1% year-over-year. Its gross profit stood at $4.99 billion, indicating a 13% growth from the prior-year quarter period.

The company reported a non-GAAP operating income of $2.59 billion, indicating a 10.8% growth from the prior-year quarter. Its non-GAAP net income stood at $2.13 billion and $4.81 per share, up 8.8% and 12.6%, year-over-year, respectively.

Per the outlook for fiscal year 2025, ADBE expects its total revenue to be between $23.30 billion and $23.55 billion. It forecasts Digital Experience subscription revenue to range from $5.375 billion to $5.425 billion. Additionally, the company expects its non-GAAP EPS to fall in the range of $20.20 to $20.50.

The consensus revenue estimate of $5.66 billion for the fiscal first quarter (ending February 2025) represents a 9.3% increase year-over-year. The consensus EPS estimate of $4.97 for the current quarter indicates a 10.9% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Over the past three and five years, ADBE’s EBIT grew at CAGRs of 10.5% and 19.1%, respectively, while its diluted EPS grew at 15.6% CAGR over the past five years.

The stock has gained marginally intraday to close the last trading session at $438.60.

ADBE’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It also has an A grade for Quality and a B for Growth. Within the Software – Application industry, it is ranked #11 out of 127 stocks. Click here to see ADBE’s ratings for Value, Momentum, Stability, and Sentiment.

Twilio Inc. (TWLO)

TWLO provides a customer engagement platform comprising international communications application programming interfaces. It operates through two segments: Twilio Communications and Twilio Data & Applications.

On December 2, TWLO announced the public beta availability of the public beta of Linked Audiences in the Twilio Segment for Amazon Redshift to drive smarter and stronger business outcomes. This integration enhances audience building, customer profile enrichment, and scalable personalization for TWLO Segment and AWS users.

On October 1, TWLO and OpenAI collaborated to integrate OpenAI’s Realtime API into its platform. This integration will enable TWLO to build conversational AI applications and agents, which will bring customers more natural interactions to the platform.

TWLO’s revenue for the fiscal third quarter that ended on September 30, 2024, increased 9.7% year-over-year to $1.13 billion with a GAAP gross margin of 51% (up 100 bps year-over-year). The company reported non-GAAP income from operations of $182.42 million, indicating a 33.7% increase from the prior-year quarter.

TWLO’s non-GAAP net income came in at $163.92 million, up 53.6% year-over-year, while its non-GAAP net income per share grew 75.9% from the year-ago value to $1.02.

According to the financial guidance for fiscal year 2024, the company’s non-GAAP income from operations is projected to be between $700 million and $710 million, with organic revenue growth anticipated to range from 7.5% to 8%.

Street expects TWLO’s revenue for the fiscal fourth quarter (ended December 2024) to increase 9.7% year-over-year to $1.18 billion. Its EPS for the same period is expected to register a 19.9% growth from the prior year, settling at $1.03. In addition, it surpassed the consensus revenue and EPS in each of the trailing four quarters, which is excellent.

TWLO’s normalized revenue has grown at CAGRs of 19.4% and 33.9% over the past three and five years, respectively. Likewise, the company’s levered FCF has increased at a CAGR of 65.5% over the past five years.

Over the past six months, the stock has gained 136.2%, closing the last trading session at $138.99.

It’s no surprise that TWLO has an overall rating of B, equating to a Buy in our POWR Ratings system. It has an A grade for Growth and a B for Sentiment. Out of 18 stocks in the A-rated Software – SAAS industry, TWLO is ranked #10.

Beyond what is stated above, we’ve also rated TWLO for Value, Momentum, Stability, and Quality. Get all TWLO ratings here.

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NOW shares were trading at $1,180.37 per share on Tuesday afternoon, up $39.75 (+3.48%). Year-to-date, NOW has gained 11.34%, versus a 3.21% rise in the benchmark S&P 500 index during the same period.

About the Author: ShreyaRathi

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