Cloud Bubble Comparisons to Dot Com Bubble Are Flawed, Says Wells Fargo Analyst (CRM) (MKTO) (N) (NOW) (WDAY) (VEEV)

In a research note Tuesday, analyst Jason Maynard of Wells Fargo discussed talk of a bubble in cloud stocks. In his view, the so-called bubble is merely a pause.

"High growth, disruptive, cloud computing stocks have dropped 20-40% over the last few months, compared to the S&P 500, which is up about 0.3% over the same period. Investors have fled the new crop of tech stocks as valuations swelled and supply has ramped. In concert, the “value tech” group has rebounded, given their discounted valuation and stable cash flow," said Maynard.

"While the rotation from growth to value may not yet be complete, we believe the cloud stock correction is more likely to be a mere pause, and not a permanent burst. Many skeptics want to draw parallels to the dot com bubble, but we think the comparison is flawed and it is different this time," he added. "Cloud stocks have corrected and now trade at more attractive valuations when evaluating the multi-year growth prospects. We have analyzed software valuations over the past twenty years and find that current valuations are defensible and have upside potential over the coming few years."

Wells Fargo has outperform rating on Salesforce.com, Inc. (NYSE: CRM), MARKETO (NASDAQ: MKTO), NetSuite (NYSE: N), ServiceNow (NYSE: NOW), Workday (NYSE: WDAY), and Veeva Systems (NYSE: VEEV).

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