Deutsche Bank says these two cloud stocks are top picks for 2024, sees one rallying nearly 25%

Published Fri, Jan 19 20246:46 AM EST

Technology stocks had a banner year in 2023, but Deutsche Bank thinks there could be even more upside ahead. Last year, the tech sector, which leapt 56.4%, was a large driving force behind the tremendous year-end rally for the S & P 500. Although these gains may seem hard to match, Deutsche Bank analyst Brad Zelnick and his team expect software stocks to outperform in the new year. "We expect Software will continue to outperform with stock price action driven more by improving fundamentals and positive estimate revisions vs. any meaningful multiple expansion," he wrote in a Thursday report. As catalysts, Zelnick cited efficient growth, the emerging results of generative artificial intelligence in practice, more prevalent cloud marketplaces and a pickup in M & A activity. In particular, the analyst listed buy-rated Salesforce and Oracle as his two top picks for 2024. Zelnick's price target of $330 for Salesforce implies that the stock could rise more than 20% from its Thursday closing price. Shares of the software firm have already added 4.3% this year, and they soared 98.5% in 2023. CRM YTD mountain CRM YTD chart "We expect Subscription revenue growth to accelerate into the low teens in the coming years with continued margin expansion, driven by unparalleled access to trusted customer data helping to unlock the potential for generative AI, pricing and packaging levers, improving execution, and disciplined capital allocation," the analyst wrote. "We see macro improvement and any return to front office hiring yielding further upside." Zelnick also called the company an "underappreciated AI winner," believing that Salesforce's leading brand, ecosystem, and data cloud have positioned the company well to capitalize on the generative AI trend. Additional catalysts include Salesforce's "significant pricing power" to drive revenues and margins higher, a return to its culture of execution and the company's strict M & A processes. "We are comfortable the company will adhere to its disciplined M & A framework introduced in September 2022, whereby any potential target will need not only be highly strategic, but also show margin progression over time," Zelnick wrote. This year should also be favorable for Oracle, with Zelnick's $135 price target implying that shares could rise another 24.2% from Thursday's close. Oracle stock has climbed 3.1% in 2024 , and shares popped 29% last year. ORCL YTD mountain ORCL YTD chart "We see the multiple recovering and the stock steadily making its way out of the penalty box in 2024," the analyst wrote. Zelnick highlighted Oracle's advantage as a second-mover public cloud to offer a more compelling product than first-generation iterations. The company also has a cloud database services migration opportunity estimated to be around $50 billion, while Zelnick also sees potential growth in the company's "market leading" back-office application products. "We see an incremental $10bn revenue opportunity alone from Oracle migrating its on-prem base to SaaS, along with new business potential as the still quite fragmented ~$50bn ERP [enterprise resource planning] + HCM [human capital management] market consolidates around the leading cloud vendors," he wrote.