Cloud stocks mount big rally led by UiPath as investors bet tech valuations bottom

UiPath CEO Daniel Dines at the company’s IPO on the New York Stock Exchange on April 21, 2021.

Source: NYSE

Cloud stocks rallied on Thursday, with more than a dozen sellers posting gains of 10% or more, as investors took advantage of a bullish day on Wall Street to grab shares of companies that have been the most beaten in this year’s massive sale.

UiPath, a provider of office automation software, led the charge with a 17% increase. The company announced a weaker-than-expected first-quarter loss on Wednesday evening as revenue beat estimates. UiPath raised its full-year revenue forecast, also beating analysts’ expectations.

Daniel Dines, CEO of UiPath, launched the company’s earnings call by acknowledging the difficult economic conditions that have depressed valuations in 2022.

“Rough macro environments usually reveal areas that can be improved,” Dines said. “To that end, the team is focused on simplifying our go-to-market approach, starting with alignment that will result in better market segmentation, higher sales productivity, and customer experience and results. first class.”

Even after Thursday’s pop, UiPath has lost more than half of its value this year. The WisdomTree Cloud Computing Fund, a basket of 76 cloud stocks, jumped 6.5% on Thursday for its fourth-best day of the year, but is still down 38% in 2022.

At a time when markets are particularly volatile due to interest rate uncertainty, inflation and the war in Ukraine, companies with high growth rates but little or no profitability are disadvantaged by investors , who are looking for the safest assets. The narrative has completely changed since the past two years, when outsized growth was celebrated even at the expense of profits.

Because cloud stocks have sold off so dramatically this year, tech bulls are looking for every opportunity to call the bottom and get a discount. Forward earnings multiples for the basket of cloud stocks have contracted on average to around 8 from around 15 in September, according to Bessemer Venture Partners, whose cloud index forms the basis of the WisdomTree fund.

Thursday’s rebound came despite Microsoft announcing a downward revision to its quarterly guidance due to an unfavorable currency impact.

In addition to UiPath, top performers in the cloud group included Elastic, which helps enterprises integrate search into their applications, and analytics firm DataDog, which rose 19% and 13%, respectively. Asana, Veeva and GitLab all grew by at least 14%. Okta, and Shopify are other notable double-digit percentage gainers. These companies are still all down for the year between 25% (Veeva) and 71% (Shopify).

Elastic on Wednesday reported quarterly revenue above analysts’ estimates, but called for a bigger-than-expected loss for the new fiscal year. CEO Ashutosh Kulkarni told analysts that “the strength of the demand environment has continued.” It was the best day for the stock since the 2018 IPO.

Veeva, which sells software to hospitals and drugmakers, was boosted Thursday by a better-than-expected earnings report.

“We don’t see the macro effects in any particular segment,” CEO Peter Gassner said on the call.

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