- There are many cloud plays, "but if you're going to own these stocks, you need to understand what these companies actually do, which is why we're running this whole cloud primer series," CNBC's Jim Cramer says.
- The "Mad Money" host breaks down and gives recommendations on 11 stocks in the cloud-based software space.
Technology has impacted nearly every industry and one subset is transforming the backend of business operations.
Cloud computing is a secular growth theme in recent years that has been one of the hottest parts of the market, yet the average person can't explain what the companies that make up the group actually do, CNBC's Jim Cramer said Wednesday.
The "Mad Money" host has crowned a number of his favorite stocks in the sector under the so-called "cloud king" and riskier "cloud prince" umbrellas, but only advises that investors only own companies that they have done their homework on.
"There are a lot of great opportunities in the cloud space, but if you're going to own these stocks, you need to understand what these companies actually do, which is why we're running this whole cloud primer series," he said.
Cramer broke down and gave recommendations on 11 names in the cloud-based software cohort:
One of the stocks in the "cloud king" cohort, Splunk focuses on combing through, combining and making sense of machine data that run through connected devices.
"CEO Douglas Merritt is a superb manager and in a business that is pretty cut throat, you know, I've never heard a word that was bad about him. He's loved," Cramer said.
Alteryx is a fast-growing business intelligence play. The subscription-based platform serves enterprises looking to compile and analyze large amounts of data from multiple sources. Shares of the software company are up almost 140% this year after taking on nearly 7 points in Wednesday's trading day to close above $142 a piece.
"The numbers here are just stunning, but I don't want to chase at these levels. You've got to wait for a pullback for Alteryx," Cramer said.
ServiceNow is another one of Cramer's "Cloud King" members. The firm develops labor-saving technology that helps businesses produce digital workflows and run leaner operations. The stock is more than 12% off of its July all-time high, even though the company delivered better-than-expected results in its recent quarterly report.
"I like ServiceNow at these levels and I'm not the only one. The stock caught an upgrade from Stifel this morning and it exploded higher, up 4% today," the host said. "It has room to run, though."
Cramer swapped Red Hat for Twilio in his "cloud kings" group after the former was acquired by IBM earlier this year. Twilio is a cloud-based service that's looking to upend how call centers operate to include bots and automated voice systems. Companies like Airbnb and Lyft use the platform to communicate with customers via voice and text messaging.
The stock is down nearly 13% since late July, but "this story is better than it was a month ago," Cramer said.
Shares closed Wednesday at $131.06, a nearly 47% increase from the beginning of the year.
Atlassian is a communications software company that helps software designers in collaborating and developing programs. The firm owns a bucket of teamwork products such as Jira, Confluence, HipChat and Bitbucket.
Cramer said investors have to spend a lot to own a piece of Atlassian here. Closing under $144, the stock is about 5 points off of its all-time high it set in late July.
"I would not buy it at these levels, but I sure wouldn't sell the whole position if you own it," Cramer said. "Now, if you don't, wait for a real pullback. It's fine."
HubSpot focuses on inbound marketing. The company provides businesses with Hub, a free customer service platform used to manage customer relationships. HubSpot offers a host of targeted marketing, promotions and sales services that clients must pay for.
The stock climbed to an all-time high of $204.26 during the session before ending the day under $200.
"I think it's too late to buy this one, but if you can get a nice pullback, it's absolutely worth owning," Cramer said. "Although if it did pullback, I bet you someone would like to buy them. A real company. It's on the buy list of every single growth stock manager out there."
New Relic offers a host of services to help entities gather, store and analyze software data in real time. Companies use the enterprise software company to operate and troubleshoot their websites. Shares tanked nearly 30% in one day earlier this month on weak guidance that management showed shareholders in its recent quarter report.
The company has lost almost half its value since late July.
"Now I am a big believer in CEO Lew Cirne, but you know we got to hear from him before I say" buy New Relic, Cramer said.
Five9 develops cloud software that aims to upend physical call centers. The platform allows workers to run phone operations from anywhere, including home.
The equity is up nearly 46% this year, finishing Wednesday's session at $63.79 a share.
"Five9's another one that's on fire. I do not recommend chasing it," the host said. "Again, put it on your shopping list and wait for a pullback."
RingCentral offers businesses a cloud-based telephone system that's does without the cords and relies on the internet. The platform includes collaborative communications through voice, video, messaging and conferencing.
The stock trades at roughly $140 after rallying nearly 70% in 2019.
"Again, the latest quarter was fabulous. The stock's been on fire. Don't try to chase it, wait for a better opportunity," Cramer said.
Zendesk is another software company that offers businesses customer support services through phone and text messaging. Cramer noted that the firm is entering into the data analytics space.
While the company met expectations in its recent quarter report, the stock tumbled. The share price is down nearly 14% since late July.
"Zendesk seems to have put in a bottom here, and this is one of the few cloud stocks that I would countenance us buying right now," Cramer said.
Appian provides software designers with a platform that simplifies the coding process. Known as low-code, the company helps businesses develop tools that require less coding. Cramer noted that the stock is a laggard int he group, but said it's emerging as one of the best performers.
"With the stock up more than 50% in less than a month," Cramer said he can't recommend chasing it.
WATCH: Cramer runs down stocks in the cloud space
Disclosure: Cramer's charitable trust owns shares of Twilio.