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3 Storage Devices Stocks to Watch as the Industry Rebounds
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The Zacks Computer-Storage Devices industry players are well-poised to gain from solid momentum in cloud computing, Internet of Things (IoT), auto, connected devices, virtual reality and Artificial Intelligence (AI) in the long run. These factors propel the demand for robust data storage solutions, bolstering computer storage product requirements. The same factors are favorable for prominent industry players like Super Micro Computer (SMCI - Free Report) , NetApp (NTAP - Free Report) and Pure Storage (PSTG - Free Report) . The democratization of higher internal memory smartphones, faster Internet speed and 5G will likely act as a tailwind for industry participants. The rapid deployment of 5G networking is driving the proliferation of IoT, Advanced Driver Assistance Systems (ADAS) and Augmented Reality/Virtual Reality (AR/VR) devices. However, cautious IT spending amid global macroeconomic turbulence is a significant headwind in the near term, along with volatile supply chain dynamics and inflation.
Industry Description
The Zacks Computer-Storage Devices industry houses companies that design, develop, manufacture and market various hard disk drives (HDDs) and solid-state drives (SSDs). These drives are utilized in PCs, laptops, mobiles, servers, network-attached storage (NAS) devices, video game consoles, digital video recorders and other consumer electronic devices. A few industry participants, including Pure Storage, provide software-defined all-flash solutions that are uniquely fast and cloud-capable for customers. Many industry players offer high-performance modular memory subsystems, mount and blade server systems, enterprise storage and data management software and hardware products and services. Some industry participants also provide purpose-built servers for storing and accessing data over a shared network or the Internet.
4 Trends Shaping the Computer-Storage Industry's Future
New Normal Trends & Rapid Implementation of 5G Opening New Business Avenues: The accelerated deployment of 5G and rebound in the smartphone market will likely propel the industry to newer heights. Extensive implementation of cloud computing solutions, increased Internet usage and rapidly growing media and regulatory compliance have led to a data explosion for enterprises. The implementation of hybrid work models has triggered the demand for data-intensive applications like video conferencing and cloud services. Adequate storage is essential for harnessing data and is expected to raise demand for high-storage capable SSDs and internal memory in advanced smartphones.
Innovation in Cloud Storage Technologies to Drive Adoption: Broader storage options from collocated hardware (such as hard disks and tape drives) to many cloud storage solutions have put the industry on a growth trajectory. The industry players are well poised for growth owing to a rapid increase in data, the complexity of data formats and the need to scale resources at regular intervals. These companies rely on Artificial Intelligence for IT Operations (AIOps) and machine learning (ML) to manage and optimize storage solutions. To streamline data storage, companies are relying on virtualization technologies. As more data is added from IoT, companies are turning to edge computing architecture to reduce latency and boost flexibility. Kubernetes storage is becoming increasingly popular as it facilitates greater agility and scalability. This has bolstered the deployment of high-capacity mass storage products, a positive for industry players.
Increases in IT Spending Bodes Well, Macro Conditions Concerning: Per a report from Gartner, worldwide IT spending is now projected to reach $5.06 trillion in 2024, calling for an increase of 8% from 2023 levels. This is an improvement over the earlier projection of 6.8%. The report also highlighted that spending on IT services is set to become the biggest market, with revenue growth of 9.7% in 2024. Spending on data center systems is expected to increase owing to the focus on planning for generative AI. The data center systems market is set to witness an increase of 10% in 2024 compared with 4% in 2023. Gartner stated that AI servers will comprise nearly 60% of hyperscalers’ total server spending in 2024. The devices segment is expected to bounce back in 2024. The integration of GenAI capabilities in premium and basic phones will fuel growth for this particular market, added the report.
However, uncertain global macroeconomic conditions and supply chain dynamics are a persistent concern. Uncertainty in the macro backdrop and inflationary pressure could affect spending across small- and medium-sized businesses globally. The uncertainty in business visibility could dent the industry’s performance in the near term.
Momentum in PC Shipments Might Boost Growth Prospects: Worldwide PC shipments are anticipated to increase 3.5% year over year to 250.4 million units in 2024, according to data compiled by Gartner. Gartner expects on-device AI to boost the marketing of PCs throughout the current year and help sustain current anticipated replacement cycles amid geopolitical and economic uncertainties. PC shipments inched up 1.5% in the first quarter, per a report from IDC.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer Storage is housed within the broader Zacks Computer And Technology Sector. It carries a Zacks Industry Rank #13, which places it in the top 5% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a downbeat earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimate for 2024 stands at $1.82 against an estimate of $1.70 as of Apr 30, 2024.
Before we present a few stocks you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Both S&P 500 and the Sector
The Zacks Computer-Storage Devices industry has outperformed the S&P 500 composite index and the broader sector in the past year.
The industry has surged 160.3% in this period compared with the S&P 500’s rise of 25.7%. The broader sector has gained 41.9% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E (or Price/Earnings), which is a commonly used multiple for valuing computer storage devices companies, we see that the industry is currently trading at 45.36X compared with the S&P 500’s 20.74X. It is above the sector’s forward-12-month P/E of 25.88X.
In the past five years, the industry has traded as high as 183.94X and as low as 11.21X, with the median being 17.37X, as the charts below indicate.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Forward 12-Month P/E Ratio
3 Computer-Storage Devices Stocks to Add to Watchlist
Super Micro Computer: This San Jose, CA-based company is a total IT solution manufacturer for AI, Cloud, Storage and 5G/Edge technologies. SMCI’s rack-scale plug-and-play Total AI and IT Solutions (especially the Deep-Learning and LLM-optimized ones based on NVIDIA HGX-H100) are gaining substantial traction. The company’s efforts to gain further share in the AI infrastructure market with a ramp of new products, including innovative DLC designs, bode well.
The company recently posted solid third-quarter fiscal 2024 results, with revenues skyrocketing 200% on a year-over-year basis to $3.85 billion. Revenues from enterprise/channel vertical came in at $1.88 billion (representing 49% of revenues), up 190% year over year. The OEM appliance and large data center vertical revenues were $1.94 billion (50% of revenues), surging 222% year over year.
Driven by strong quarterly results, management raised the fiscal 2024 revenue outlook to $14.7 billion to $15.1 billion from $14.3-$14.7 billion.
The Zacks Consensus Estimate for fiscal 2024 earnings per share for the company improved to $23.51 from $21.71 per share in the past 60 days. The stock has appreciated 507.7% in the past year.
Price and Consensus: SMCI
NetApp: This San Jose-based company provides enterprise storage as well as data management software and hardware products and services. The company assists enterprises in managing multiple cloud environments, adopting next-generation technologies like AI, Kubernetes and contemporary databases and navigating the complexity brought about by the quick development of data and cloud usage.
NetApp’s performance is gaining from strength across its expanded all-flash product portfolio and continued operational discipline. In the fiscal third quarter, the company’s All-Flash Array Business’s annualized revenue run rate was $3.4 billion, up 21% year over year. The company’s advanced portfolio of ransomware protection solutions is likely to gain momentum amid rising cybersecurity risks. The company’s hyper-scaler partnerships and natively integrated storage services will help tap the growing demand for generative AI. Frequent product launches bode well. However, uncertainty prevailing over macroeconomic conditions and high-interest rates continue to hamper its financial performance. Also, price increases on NAND from suppliers are a concern.
NetApp carries a Zacks Rank #2 (Buy) currently. The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged at $6.47 per share in the past 30 days. Its long-term earnings growth rate is pegged at 8.8%. Shares have risen 68.7% in the past year.
Price and Consensus: NTAP
Pure Storage: Headquartered in Mountain View, CA, Pure Storage provides software-defined all-flash solutions that are uniquely fast and cloud-capable for customers.
Pure Storage’s performance is gaining from strong demand for subscription-based offerings, particularly Evergreen//One and Portworx. Subscription services revenues (42% of total revenues) rose 24% year over year in the last reported quarter. Total contract value (TCV) sales for Evergreen//One and Evergreen//Flex exceeded $400 million in the fiscal 2024. The company expects strengthening demand trends to drive top-line expansion. Revenues for fiscal 2025 are anticipated to be $3.1 billion, indicating 10.5% growth from fiscal 2024. TCV sales for Evergreen//One & Evergreen//Flex subscription service offerings are forecast to be $600 million, suggesting a 50% year-over-year rise.
Management remains concerned about the volatile macroeconomic backdrop. Intensified competition in the flash-based storage market remains an additional headwind.
Pure Storage carries a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2025 earnings has remained unchanged at $1.55 per share in the past 30 days. Its long-term earnings growth rate is pegged at 17.6%. Shares have risen 137.1% in the past year.
Price and Consensus: PSTG
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3 Storage Devices Stocks to Watch as the Industry Rebounds
The Zacks Computer-Storage Devices industry players are well-poised to gain from solid momentum in cloud computing, Internet of Things (IoT), auto, connected devices, virtual reality and Artificial Intelligence (AI) in the long run. These factors propel the demand for robust data storage solutions, bolstering computer storage product requirements. The same factors are favorable for prominent industry players like Super Micro Computer (SMCI - Free Report) , NetApp (NTAP - Free Report) and Pure Storage (PSTG - Free Report) . The democratization of higher internal memory smartphones, faster Internet speed and 5G will likely act as a tailwind for industry participants. The rapid deployment of 5G networking is driving the proliferation of IoT, Advanced Driver Assistance Systems (ADAS) and Augmented Reality/Virtual Reality (AR/VR) devices. However, cautious IT spending amid global macroeconomic turbulence is a significant headwind in the near term, along with volatile supply chain dynamics and inflation.
Industry Description
The Zacks Computer-Storage Devices industry houses companies that design, develop, manufacture and market various hard disk drives (HDDs) and solid-state drives (SSDs). These drives are utilized in PCs, laptops, mobiles, servers, network-attached storage (NAS) devices, video game consoles, digital video recorders and other consumer electronic devices. A few industry participants, including Pure Storage, provide software-defined all-flash solutions that are uniquely fast and cloud-capable for customers. Many industry players offer high-performance modular memory subsystems, mount and blade server systems, enterprise storage and data management software and hardware products and services. Some industry participants also provide purpose-built servers for storing and accessing data over a shared network or the Internet.
4 Trends Shaping the Computer-Storage Industry's Future
New Normal Trends & Rapid Implementation of 5G Opening New Business Avenues: The accelerated deployment of 5G and rebound in the smartphone market will likely propel the industry to newer heights. Extensive implementation of cloud computing solutions, increased Internet usage and rapidly growing media and regulatory compliance have led to a data explosion for enterprises. The implementation of hybrid work models has triggered the demand for data-intensive applications like video conferencing and cloud services. Adequate storage is essential for harnessing data and is expected to raise demand for high-storage capable SSDs and internal memory in advanced smartphones.
Innovation in Cloud Storage Technologies to Drive Adoption: Broader storage options from collocated hardware (such as hard disks and tape drives) to many cloud storage solutions have put the industry on a growth trajectory. The industry players are well poised for growth owing to a rapid increase in data, the complexity of data formats and the need to scale resources at regular intervals. These companies rely on Artificial Intelligence for IT Operations (AIOps) and machine learning (ML) to manage and optimize storage solutions. To streamline data storage, companies are relying on virtualization technologies. As more data is added from IoT, companies are turning to edge computing architecture to reduce latency and boost flexibility. Kubernetes storage is becoming increasingly popular as it facilitates greater agility and scalability. This has bolstered the deployment of high-capacity mass storage products, a positive for industry players.
Increases in IT Spending Bodes Well, Macro Conditions Concerning: Per a report from Gartner, worldwide IT spending is now projected to reach $5.06 trillion in 2024, calling for an increase of 8% from 2023 levels. This is an improvement over the earlier projection of 6.8%. The report also highlighted that spending on IT services is set to become the biggest market, with revenue growth of 9.7% in 2024. Spending on data center systems is expected to increase owing to the focus on planning for generative AI. The data center systems market is set to witness an increase of 10% in 2024 compared with 4% in 2023. Gartner stated that AI servers will comprise nearly 60% of hyperscalers’ total server spending in 2024. The devices segment is expected to bounce back in 2024. The integration of GenAI capabilities in premium and basic phones will fuel growth for this particular market, added the report.
However, uncertain global macroeconomic conditions and supply chain dynamics are a persistent concern. Uncertainty in the macro backdrop and inflationary pressure could affect spending across small- and medium-sized businesses globally. The uncertainty in business visibility could dent the industry’s performance in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer Storage is housed within the broader Zacks Computer And Technology Sector. It carries a Zacks Industry Rank #13, which places it in the top 5% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a downbeat earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimate for 2024 stands at $1.82 against an estimate of $1.70 as of Apr 30, 2024.
Before we present a few stocks you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Both S&P 500 and the Sector
The Zacks Computer-Storage Devices industry has outperformed the S&P 500 composite index and the broader sector in the past year.
The industry has surged 160.3% in this period compared with the S&P 500’s rise of 25.7%. The broader sector has gained 41.9% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E (or Price/Earnings), which is a commonly used multiple for valuing computer storage devices companies, we see that the industry is currently trading at 45.36X compared with the S&P 500’s 20.74X. It is above the sector’s forward-12-month P/E of 25.88X.
In the past five years, the industry has traded as high as 183.94X and as low as 11.21X, with the median being 17.37X, as the charts below indicate.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Forward 12-Month P/E Ratio
3 Computer-Storage Devices Stocks to Add to Watchlist
Super Micro Computer: This San Jose, CA-based company is a total IT solution manufacturer for AI, Cloud, Storage and 5G/Edge technologies. SMCI’s rack-scale plug-and-play Total AI and IT Solutions (especially the Deep-Learning and LLM-optimized ones based on NVIDIA HGX-H100) are gaining substantial traction. The company’s efforts to gain further share in the AI infrastructure market with a ramp of new products, including innovative DLC designs, bode well.
The company recently posted solid third-quarter fiscal 2024 results, with revenues skyrocketing 200% on a year-over-year basis to $3.85 billion. Revenues from enterprise/channel vertical came in at $1.88 billion (representing 49% of revenues), up 190% year over year. The OEM appliance and large data center vertical revenues were $1.94 billion (50% of revenues), surging 222% year over year.
Driven by strong quarterly results, management raised the fiscal 2024 revenue outlook to $14.7 billion to $15.1 billion from $14.3-$14.7 billion.
SMCI sports a Zacks Rank #1 (Strong Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for fiscal 2024 earnings per share for the company improved to $23.51 from $21.71 per share in the past 60 days. The stock has appreciated 507.7% in the past year.
Price and Consensus: SMCI
NetApp: This San Jose-based company provides enterprise storage as well as data management software and hardware products and services. The company assists enterprises in managing multiple cloud environments, adopting next-generation technologies like AI, Kubernetes and contemporary databases and navigating the complexity brought about by the quick development of data and cloud usage.
NetApp’s performance is gaining from strength across its expanded all-flash product portfolio and continued operational discipline. In the fiscal third quarter, the company’s All-Flash Array Business’s annualized revenue run rate was $3.4 billion, up 21% year over year. The company’s advanced portfolio of ransomware protection solutions is likely to gain momentum amid rising cybersecurity risks. The company’s hyper-scaler partnerships and natively integrated storage services will help tap the growing demand for generative AI. Frequent product launches bode well. However, uncertainty prevailing over macroeconomic conditions and high-interest rates continue to hamper its financial performance. Also, price increases on NAND from suppliers are a concern.
NetApp carries a Zacks Rank #2 (Buy) currently. The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged at $6.47 per share in the past 30 days. Its long-term earnings growth rate is pegged at 8.8%. Shares have risen 68.7% in the past year.
Price and Consensus: NTAP
Pure Storage: Headquartered in Mountain View, CA, Pure Storage provides software-defined all-flash solutions that are uniquely fast and cloud-capable for customers.
Pure Storage’s performance is gaining from strong demand for subscription-based offerings, particularly Evergreen//One and Portworx. Subscription services revenues (42% of total revenues) rose 24% year over year in the last reported quarter. Total contract value (TCV) sales for Evergreen//One and Evergreen//Flex exceeded $400 million in the fiscal 2024. The company expects strengthening demand trends to drive top-line expansion. Revenues for fiscal 2025 are anticipated to be $3.1 billion, indicating 10.5% growth from fiscal 2024. TCV sales for Evergreen//One & Evergreen//Flex subscription service offerings are forecast to be $600 million, suggesting a 50% year-over-year rise.
Management remains concerned about the volatile macroeconomic backdrop. Intensified competition in the flash-based storage market remains an additional headwind.
Pure Storage carries a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2025 earnings has remained unchanged at $1.55 per share in the past 30 days. Its long-term earnings growth rate is pegged at 17.6%. Shares have risen 137.1% in the past year.
Price and Consensus: PSTG