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3 Storage Devices Stocks to Watch for in a Thriving Industry
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The Zacks Computer-Storage Devices industry benefits from encouraging trends in PC shipments and the solid momentum in cloud computing, Internet of Things (IoT), auto, connected devices, virtual reality and Artificial Intelligence (AI). These factors propel the demand for robust data storage solutions, bolstering computer storage product requirements. These factors are favorable for prominent industry players like NetApp (NTAP - Free Report) , Super Micro Computer (SMCI - Free Report) and Teradata (TDC - 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: 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. 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.
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 amassed 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.
Macro Headwinds May Prove a Drag on IT Spending in the Near Term: Weakening IT spending amid global macroeconomic weakness is likely to remain a headwind in the near term. Increased budget scrutiny, especially cloud-cost optimization by clients and forex volatility are affecting the top-line performance of the industry participants. Consumer spending cuts on purchasing PCs, tablets and printers will likely hinder IT spending growth. In the long run, higher technology spending on transformation projects, including data security, application modernization, analytics and AI by enterprises, augurs well for industry participants.
Slowing Momentum in PC Shipments Might Hinder Growth Prospects: Worldwide PC shipments declined 16.6% to 59.7 million units in the second quarter of 2023, according to the data compiled by Gartner. Global macroeconomic weakness and inflationary pressure are leading to careful IT spending by business organizations. A slowing PC market does not augur well for the industry participants. However, Gartner expects PC inventory to normalize by the end of this year while PC demand is expected to return to growth in 2024.
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 #58, which places it in the top 24% of more than 246 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.
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 outperformed the S&P 500 composite index and the broader sector in the past year.
The industry has gained 33.9% over this period compared with the S&P 500’s gain of 13.4%. The broader sector has gained 24.5% 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 35.20X compared with the S&P 500’s 19.40X. It is also above the sector’s forward-12-month P/E of 24.44X.
In the past five years, the industry has traded as high as 183.94X and as low as 10.64X, with the median being 16.18X, as the charts below indicate.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Storage Devices Stocks to Power Your Portfolio
Super Micro Computer: The San Jose, CA-based company designs, develops, manufactures and sells energy-efficient, application-optimized server solutions based on the x86 architecture. The company's solutions include a range of rack mount and blade server systems and components. Super Micro also produces server boards, chassis and server systems.
In the last reported quarter, the company’s revenues of $2.18 billion surged 33.6% year over year. For fiscal 2024 (ending June 30, 2024), the company now expects net sales to be $9.5 -$10.5 billion.
The Zacks Consensus Estimate for fiscal 2024 earnings for the company increased 68.2% in the past 60 days to $15.54 per share in the past 60 days.
Price and Consensus: SMCI
NetApp: The company is well-poised to gain from data-driven digital and cloud transformations. Frequent product launches and secular trends in Artificial Intelligence (AI) and high-performance computing bode well. Extensive cost-discipline measures and dividend and share repurchase activity are noteworthy.
The company recently reported first-quarter fiscal 2024 non-GAAP earnings of $1.15 per share, which surpassed the Zacks Consensus Estimate by 7.5%. Revenues of $1.432 billion decreased 10% year over year. Weak IT spending due to the tough macro environment affected performance. However, revenues beat the consensus mark by 1.5%.
NetApp expects fiscal 2024 revenues to decline in the mid-to-low single-digit range on a year-over-year basis.
NetApp carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for fiscal 2024 earnings for the company improved 0.9% to $5.73 per share in the past 60 days. Its long-term earnings growth rate is pegged at 8%. Shares are up 5.9% in the past year.
Price and Consensus: NTAP
Teradata: Teradata is benefiting from solid growth in public cloud annual recurring revenues, driven by strong demand for VantageCloud analytics and data platform. The increasing number of cloud deals in the Americas and EMEA regions are key catalysts. Moreover, the availability of Teradata VantageCloud Lake on Microsoft Azure is expected to expand clientele as it offers end-to-end support for artificial intelligence and machine learning workloads, including generative AI and large language models. Acquisition of Stemma, a cloud-native, fully managed data catalog solution, strengthens Teradata’s product portfolio. Stringent cost control has been a positive.
Shares of Teradata, which carries a Zacks Rank #3, have gained 41.6% in the past year.
The Zacks Consensus Estimate for 2023 earnings for the company is pegged at $1.98 per share, up 1% in the past 60 days.
Price and Consensus: TDC
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3 Storage Devices Stocks to Watch for in a Thriving Industry
The Zacks Computer-Storage Devices industry benefits from encouraging trends in PC shipments and the solid momentum in cloud computing, Internet of Things (IoT), auto, connected devices, virtual reality and Artificial Intelligence (AI). These factors propel the demand for robust data storage solutions, bolstering computer storage product requirements. These factors are favorable for prominent industry players like NetApp (NTAP - Free Report) , Super Micro Computer (SMCI - Free Report) and Teradata (TDC - 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: 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. 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.
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 amassed 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.
Macro Headwinds May Prove a Drag on IT Spending in the Near Term: Weakening IT spending amid global macroeconomic weakness is likely to remain a headwind in the near term. Increased budget scrutiny, especially cloud-cost optimization by clients and forex volatility are affecting the top-line performance of the industry participants. Consumer spending cuts on purchasing PCs, tablets and printers will likely hinder IT spending growth. In the long run, higher technology spending on transformation projects, including data security, application modernization, analytics and AI by enterprises, augurs well for industry participants.
Slowing Momentum in PC Shipments Might Hinder Growth Prospects: Worldwide PC shipments declined 16.6% to 59.7 million units in the second quarter of 2023, according to the data compiled by Gartner. Global macroeconomic weakness and inflationary pressure are leading to careful IT spending by business organizations. A slowing PC market does not augur well for the industry participants. However, Gartner expects PC inventory to normalize by the end of this year while PC demand is expected to return to growth in 2024.
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 #58, which places it in the top 24% of more than 246 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.
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 outperformed the S&P 500 composite index and the broader sector in the past year.
The industry has gained 33.9% over this period compared with the S&P 500’s gain of 13.4%. The broader sector has gained 24.5% 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 35.20X compared with the S&P 500’s 19.40X. It is also above the sector’s forward-12-month P/E of 24.44X.
In the past five years, the industry has traded as high as 183.94X and as low as 10.64X, with the median being 16.18X, as the charts below indicate.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Storage Devices Stocks to Power Your Portfolio
Super Micro Computer: The San Jose, CA-based company designs, develops, manufactures and sells energy-efficient, application-optimized server solutions based on the x86 architecture. The company's solutions include a range of rack mount and blade server systems and components. Super Micro also produces server boards, chassis and server systems.
In the last reported quarter, the company’s revenues of $2.18 billion surged 33.6% year over year. For fiscal 2024 (ending June 30, 2024), the company now expects net sales to be $9.5 -$10.5 billion.
Shares of Super Micro Computer, which sports a Zacks Rank #1 (Strong Buy), have gained 323.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for fiscal 2024 earnings for the company increased 68.2% in the past 60 days to $15.54 per share in the past 60 days.
Price and Consensus: SMCI
NetApp: The company is well-poised to gain from data-driven digital and cloud transformations. Frequent product launches and secular trends in Artificial Intelligence (AI) and high-performance computing bode well. Extensive cost-discipline measures and dividend and share repurchase activity are noteworthy.
The company recently reported first-quarter fiscal 2024 non-GAAP earnings of $1.15 per share, which surpassed the Zacks Consensus Estimate by 7.5%. Revenues of $1.432 billion decreased 10% year over year. Weak IT spending due to the tough macro environment affected performance. However, revenues beat the consensus mark by 1.5%.
NetApp expects fiscal 2024 revenues to decline in the mid-to-low single-digit range on a year-over-year basis.
NetApp carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for fiscal 2024 earnings for the company improved 0.9% to $5.73 per share in the past 60 days. Its long-term earnings growth rate is pegged at 8%. Shares are up 5.9% in the past year.
Price and Consensus: NTAP
Shares of Teradata, which carries a Zacks Rank #3, have gained 41.6% in the past year.
The Zacks Consensus Estimate for 2023 earnings for the company is pegged at $1.98 per share, up 1% in the past 60 days.
Price and Consensus: TDC