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Two cloud stocks you should own right now and why

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The WisdomTree Cloud Computing ETF down nearly 30% for the year is an opportunity to pick quality names at a deep discount, Tyler Radke said this morning on CNBC’s “TechCheck”.

Citi analyst reveals his top two cloud stocks

Two names in the cloud space that particularly pop out to the Senior Citi Analyst are ServiceNow Inc (NYSE: NOW) and Microsoft Corporation (NASDAQ: MSFT). Explaining why, he said:

Companies that have exposure to large enterprise IT budgets, that have weathered the previous downturns, have real platforms, multi-products they can sell, pricing power; those things will be very important as we think about the second half.

Radke likes MSFT even after the multinational cited “exchange rate” and lowered its outlook for the fiscal fourth quarter at the start of this month.

There’s reason to call a bottom in cloud stocks

The Citi analyst expects the 10-year to move down in the back half of 2022, which, he says, suggests the cloud space at large doesn’t have a lot of downside left from here. Radke noted:

We’ve seen a very strong correlation between rising rates and falling valuations this year. The 10-year today is hovering in the low 3.0%, but Citi’s in-house forecast is for it to end the year at around 2.75%.

Both of his picks are down just over 20% year-to-date. In April, CEO Bill McDermott said ServiceNow should be an $800 stock. In other words, the chief executive sees a 50% upside in the share price from here.

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