We recently compiled a list of the Worst Cloud Stocks To Buy According to Short Sellers. In this article, we will look at where MongoDB, Inc. (NASDAQ:MDB) stands against the worst cloud stocks to buy according to short sellers.
Cloud computing refers to the use of remote servers, typically accessed via the Internet, to store, manage, and process data. A segment of the broader IT services industry, the cloud computing market was valued at $480 billion in 2022, and despite its size, it is projected to grow at a compound annual growth rate (CAGR) of 17%, reaching an estimated $2.2 trillion by 2032 (according to estimates from Precedence Research). Knowing this, it’s no surprise that many of the hottest tech stocks from 2019 to 2021 were tied to cloud computing, with ETFs like the First Trust Cloud Computing ETF surging 71.84% over the past five years.
The largest cloud computing segment is Software as a Service (SaaS), which generates the most revenue in the cloud market and has become the standard for delivering enterprise applications. Common uses of SaaS include customer relationship management, analytics, and artificial intelligence software. The next layer, Platform as a Service (PaaS), provides customers with a platform for application development. Lastly, Infrastructure as a Service (IaaS) offers customers off-site resources such as storage, servers, virtual machines, and networking.
Amid the disruption and excitement surrounding generative AI (GenAI), cloud service providers (CSPs) enable businesses to engage with customers and operate innovatively. With AI Ops and AI tools offered by CSPs, businesses can transform proof-of-concept ideas into production-ready solutions, delivering personalized recommendations, optimizing supply chains, and enhancing customer experiences. Following the launch of OpenAI’s ChatGPT, cloud providers have started utilizing these advancements to unlock new opportunities. Moreover, Tim Potter, a principal at Deloitte Consulting, made the following remarks regarding the relationship between AI and the cloud:
“AI is accelerating the adoption of cloud computing while enabling cloud providers to enhance platform solutions and services. Most AI solutions are either services offered directly by hyperscalers or solutions built on top of a hyperscaler’s cloud infrastructure.”
Another major driver of the cloud industry’s growth is the increasing recognition by large enterprises of its impact on their operations. According to a report by the Cloud Security Alliance, 94% of companies worldwide have already adopted cloud computing solutions this past year. This widespread adoption is projected to have a significant economic impact, with estimates suggesting it could generate around $3 trillion in revenue by 2030.
Although the Magnificent Seven stocks have been in the spotlight since the surge in artificial intelligence excitement, Apple Inc. has recently been making notable advancements in the AI space. Earlier this year, the iPhone-maker unveiled its new artificial intelligence initiative which is set to elevate the cloud to new levels of consumer exposure, with the tech giant moving toward offering on-device AI through a partnership with OpenAI’s ChatGPT platform.
Our Methodology
To compile our list of the 10 worst cloud stocks to buy according to short sellers, we first compiled a list of 20 cloud stocks by sifting through ETFs and online rankings. Then we checked their short interest and selected the 10 with the highest short interest. Finally, we ranked the stocks in ascending order of their short interest. We have also included the hedge fund sentiment for each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
MongoDB, known for its flexible NoSQL database management system, enables developers to store data in a non-relational format, providing advantages such as flexible schemas and horizontal scaling. Its popularity surged with the rise of cloud computing, making NoSQL more accessible. MongoDB has established itself as a leading platform for cloud application development, attracting a community of over 7 million developers.
In Q2, MongoDB reported a 13% year-over-year revenue increase, reaching $478 million, primarily driven by the success of its Atlas and Enterprise Advanced (EA) products. The company also gained over 1,500 new customers during the quarter, bringing its total customer base to more than 50,700.
Loop Capital expressed continued confidence in MongoDB, Inc. (NASDAQ:MDB) by maintaining a Buy rating and a price target of $315. The firm noted the stabilization of MongoDB’s Cloud Atlas business and a modest uptick in consumption trends over the past quarter, while noting that the operational challenges from the first quarter have largely been resolved, resulting in a positive outlook for the company’s cloud segment. The report indicated that Cloud Atlas is expected to see Street estimates increase by over 20% for both fiscal years 2025 and 2026.
ClearBridge All Cap Growth Strategy stated the following regarding MongoDB, Inc. (NASDAQ:MDB) in its first quarter 2024 investor letter:
“During the first quarter, we initiated a new position in MongoDB, Inc. (NASDAQ:MDB), in the IT sector. The company offers a leading modern database platform that handles all data types and is geared toward modern Internet applications, which constitute the bulk of new workloads. Database is one of the largest and fastest-growing software segments, and we believe it is early innings in the company’s ability to penetrate this market. MongoDB is actively expanding its potential market by adding ancillary capabilities like vector search for AI applications, streaming and real-time data analytics. The company reached non-GAAP profitability in 2022, and we see significant room for improved margins as revenue scales.”
Overall MDB ranks 6th on our list of the worst cloud stocks to buy according to short sellers. While we recognize the potential of MDB as an investment, we believe certain deeply undervalued AI stocks offer greater prospects for higher returns in a shorter period. If you’re seeking an AI stock with even more promise than MDB and trading at less than 5 times its earnings, check out our report about the cheapest AI stock.
