Bill McDermott, CEO of ServiceNow.
Facebook Facebook logo Sign up for Facebook to connect with Adam Jeffery CNBC
Maybe cloud investors just need a little bit of certainty.
Following a brutal stretch that saw a cloud computing index fall 38% from its highest high in November, two key members of the group-ServiceNow and Qualtrics-delivered optimistic numbers on Wednesday, prompting after-market rally in their share prices.
ServiceNow, whose software automates back-office IT tasks and workflows, jumped 10% to better-than-expected results in the first quarter and a good outlook for the year.
Qualtrics, a software provider that helps companies interact with customers and track their experience, climbed more than 9% after previous estimates for the fourth quarter and exceeded expectations in its guidance in 2022.
Tech stocks entered the earnings period in a downward spiral, with the Nasdaq heading for its worst month since 2008. The index was down another 13% in January, but most companies reported on now gave signs of optimism.
“We are in a sustained demand environment here,” ServiceNow CEO Bill McDermott said in the earnings call after his company reported 29% growth in the fourth quarter and predicted 26% revenue growth. of subscription for the year.
Microsoft and Intel hit the top lines this week and exceeded the estimates in their guide, while IBM and Tesla also reported better-than-expected results. Among the most well -known big names, only Netflix failed investors, as the company’s prediction for subscriber growth was lower than estimates.
Validation time for cloud stocks
Aside from Netflix, the selloff isn’t about the basics of the business.
Instead, the collapse was largely attributed to the prospect of rising interest rates. The Federal Reserve indicated on Wednesday that it is likely to raise its benchmark rate for the first time in more than three years, and the market is pricing four rate increases in 2022, according to CME’s FedWatch tool.
Cloud stocks were particularly hit as investors rotated to companies that performed best during the bull market. From the end of 2019 to October last year, the WisdomTree Cloud Computing Index rose 146%, while the S&P 500 rose 43% along that stretch.
Investors have been dumping those stocks recently in favor of more conservative companies in the energy and financial sectors. Despite Wall Street trends and intense multiple compression in overheated market segments, cloud companies now have the opportunity to show that the growth story remains intact.
Cloud stocks vs. the broader market
CNBC
Businesses, government agencies and large organizations around the world continue to use digital technologies and cloud services that enable their employees and customers to work faster and use their data more efficiently. There is no end to the change in spending from legacy software to the cloud.
In his opening comment Wednesday, Qualtrics CEO Zig Serafin said his company has a “10-year head start,” in what it calls experience management and helping customers act on their data.
“Our growth shows that we also have a significant future opportunity in a world where it’s easier for customers to switch service providers and where employees are leaving their jobs at record rates,” he said. by Serafin.
Qualtrics reported a 48% increase in year-over-year revenue in the fourth quarter and estimated growth of at least 30% for 2022.
The cloud sector has plenty of opportunities in the coming weeks to prove that inflation and fears of higher interest rates are not yet hurting demand.
Software collaboration vendor Atlassian reported results on Thursday, followed by Bill.com, Paycom, Twilio, Datadog and Freshworks in early February.
WATCH: Microsoft is constantly moving in the right direction
.