Research firm Pacific Crest named its favorite cloud stocks for 2017, listing Microsoft (MSFT), Adobe (ADBE), Salesforce (CRM) and Twilio (TWLO) as among the firm's top picks in the space. In conjunction with the note, the firm upgraded Twilio to Overweight from Sector Weight.

CLOUD OUTLOOK: Pacific Crest analyst Brent Bracelin remains upbeat on cloud application pure plays, citing his belief that public cloud spending is poised to triple by 2020. Moreover, total spending on cloud applications, also known as software as a service, could increase by more than 20% annually, hitting $129B a year by 2020, Bracelin believes.

BIGGEST NAMES: Microsoft is entering a new era of innovation, wrote Bracelin. Moreover, its growth should accelerate, driven by its new products and its momentum in cloud and gaming, the analyst stated. He raised his price target on the stock to $70 from $65. The momentum of Adobe's marketing cloud products should enable its growth to accelerate this year, Bracelin believes. Driven by subscription revenue gains of more than 80%, the company's operating margin could rise to more than 35%, he wrote. Finally, Salesforce has dropped to valuations that have proven to be good entry points in the past, and its margins can rise if the negative impact of companies it has acquired ease, Bracelin believes. The stock can reach $95 per share, he predicted.

TWILIO UPGRADE: Bracelin upgraded Twilio to Overweight from Sector Weight. The company, which provides programmable cloud software, can beat the consensus 2017 revenue growth estimate, the analyst believes. According to Bracelin, Twilio's chances of becoming profitable by the end of this year have increased. Twilio's core business, which represents 90% of its total revenue, is growing quickly, wrote Bracelin, estimating that its top line will rise 43% this year, up from his previous estimate of 37%. Declaring that Twilio is an "instrumental" enabler of "some of the most prolific new cloud services," Bracelin said that the 55% decline in the stock this quarter has created an "attractive risk/reward ratio." He placed a $36 price target on the shares.

WHAT'S NOTABLE: The firm's other top cloud stock picks for 2017 are Veeva (VEEV), Ellie Mae (ELLI) and HubSpot (HUBS).

PRICE ACTION: In early trading, Microsoft was unchanged at $62.30, Adobe added 0.8% to $104.95, Salesforce gained 1% to $73.50, and Twilio advanced 1.8% to $28 per share.