We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 Storage Devices Stocks to Watch for in a Troubled Industry
Read MoreHide Full Article
Cautious IT spending amid global macroeconomic turbulence is a significant headwind in the near term for the Zacks Computer-Storage Devices industry, along with volatile supply chain dynamics and inflation. Nonetheless, 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. These factors are favorable for prominent industry players like NetApp (NTAP - Free Report) , Western Digital (WDC - Free Report) , Pure Storage (PSTG - 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.
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 9% year over year to 64.3 million units in the third 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 market to return to growth in 2024.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer Storage is housed within the broader Zacks Computer And Technology Sector. It carries a Zacks Industry Rank #162, which places it in the bottom 35% 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 bleak 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 38.1% over this period compared with the S&P 500’s gain of 13.2%. The broader sector has gained 34.9% 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 22.45X compared with the S&P 500’s 19.20X. It is below the sector’s forward-12-month P/E of 24.65X.
In the past five years, the industry has traded as high as 183.94X and as low as 11.21X, with the median being 16.66X, 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
Western Digital: The San Jose, CA-based company is one of the largest hard disk drives (HDDs) producers in the United States. It designs, develops, manufactures and markets a broad range of HDDs used in desktop PCs, servers, network-attached storage devices, video game consoles, digital video recorders and a host of other consumer electronic devices.
WDC’s performance benefits from the strong demand for 26-terabyte Ultra SMR drives. The company is on track to qualify 28-terabyte UltraSMR drive and further expand into the 40-terabyte range. Also, the plan to split the HDD and Flash businesses by the second half of 2024 to unlock significant value for its shareholders bodes well.
At present, Western Digital’s performance is affected due to softness across Cloud and Client end markets. The client end market is being affected by lower flash pricing. Reduced demand from cloud customers and slower-than-expected recovery in China is affecting HDD revenues.
The Zacks Consensus Estimate for fiscal 2024 loss per share for the company improved to $3.24 from a loss of $3.50 per share in the past 60 days.
Price and Consensus: WDC
NetApp: The Sunnyvale, CA-based company provides enterprise storage as well as data management software and hardware products and services.
NTAP remains well-poised to gain from data-driven digital and cloud transformations. Frequent product launches and secular trends in generative AI and high-performance computing bode well. Extensive cost discipline and new go-to-market measures, along with the focused approach to boost storage and cloud business, are added positives. Its dividend and share repurchase activity are noteworthy.
Currently, NetApp’s performance is affected by a weak IT spending environment amid macroeconomic turbulence. Management continues to expect fiscal 2024 revenues to decline in the low-to-mid single-digit range on a year-over-year basis.
NetApp carries a Zacks Rank #3. The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged at $5.73 per share in the past 60 days. Its long-term earnings growth rate is pegged at 8%. Shares are up 3.7% in the past year.
Price and Consensus: NTAP
Pure Storage: The Mountain View, CA, based company provides software-defined all-flash solutions that are uniquely fast and cloud-capable for customers.
Pure Storage’s performance is benefiting from the strong uptake of the FlashBlade portfolio (including FlashBlade//E) coupled with robust Evergreen//One subscription sales. The company is likely to benefit from continued momentum in its FlashArray and FlashBlade businesses going ahead. Frequent product launches and an increasing customer base are tailwinds. The rapid proliferation of generative AI is expected to boost demand for the company’s products. Management continues to expect revenue growth in the mid-to-high single digits for fiscal 2024.
However, challenging global macroeconomic conditions and stiff competition in the flash-based storage market remain concerning.
Pure Storage carries a Zacks Rank #3. The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged at $1.43 per share in the past 60 days. Its long-term earnings growth rate is pegged at 14.8%. Shares are up 19.5% in the past year.
Price and Consensus: PSTG
Teradata: Teradata is a leading provider of hybrid cloud analytics software.
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 AI 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. However, stiff competition in the analytic data solutions market is a threat. Weakness in the APJ and China regions is a headwind.
Shares of Teradata, which carries a Zacks Rank #3, have gained 42.9% in the past year.
The Zacks Consensus Estimate for 2023 earnings for the company is pegged at $2.01 per share, up 1.5% in the past 60 days. Its long-term earnings growth rate is pegged at 18%
Price and Consensus: TDC
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
4 Storage Devices Stocks to Watch for in a Troubled Industry
Cautious IT spending amid global macroeconomic turbulence is a significant headwind in the near term for the Zacks Computer-Storage Devices industry, along with volatile supply chain dynamics and inflation. Nonetheless, 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. These factors are favorable for prominent industry players like NetApp (NTAP - Free Report) , Western Digital (WDC - Free Report) , Pure Storage (PSTG - 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.
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 9% year over year to 64.3 million units in the third 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 market to return to growth in 2024.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer Storage is housed within the broader Zacks Computer And Technology Sector. It carries a Zacks Industry Rank #162, which places it in the bottom 35% 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 bleak 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 38.1% over this period compared with the S&P 500’s gain of 13.2%. The broader sector has gained 34.9% 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 22.45X compared with the S&P 500’s 19.20X. It is below the sector’s forward-12-month P/E of 24.65X.
In the past five years, the industry has traded as high as 183.94X and as low as 11.21X, with the median being 16.66X, 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
Western Digital: The San Jose, CA-based company is one of the largest hard disk drives (HDDs) producers in the United States. It designs, develops, manufactures and markets a broad range of HDDs used in desktop PCs, servers, network-attached storage devices, video game consoles, digital video recorders and a host of other consumer electronic devices.
WDC’s performance benefits from the strong demand for 26-terabyte Ultra SMR drives. The company is on track to qualify 28-terabyte UltraSMR drive and further expand into the 40-terabyte range. Also, the plan to split the HDD and Flash businesses by the second half of 2024 to unlock significant value for its shareholders bodes well.
At present, Western Digital’s performance is affected due to softness across Cloud and Client end markets. The client end market is being affected by lower flash pricing. Reduced demand from cloud customers and slower-than-expected recovery in China is affecting HDD revenues.
Western Digital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for fiscal 2024 loss per share for the company improved to $3.24 from a loss of $3.50 per share in the past 60 days.
Price and Consensus: WDC
NetApp: The Sunnyvale, CA-based company provides enterprise storage as well as data management software and hardware products and services.
NTAP remains well-poised to gain from data-driven digital and cloud transformations. Frequent product launches and secular trends in generative AI and high-performance computing bode well. Extensive cost discipline and new go-to-market measures, along with the focused approach to boost storage and cloud business, are added positives. Its dividend and share repurchase activity are noteworthy.
Currently, NetApp’s performance is affected by a weak IT spending environment amid macroeconomic turbulence. Management continues to expect fiscal 2024 revenues to decline in the low-to-mid single-digit range on a year-over-year basis.
NetApp carries a Zacks Rank #3. The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged at $5.73 per share in the past 60 days. Its long-term earnings growth rate is pegged at 8%. Shares are up 3.7% in the past year.
Price and Consensus: NTAP
Pure Storage’s performance is benefiting from the strong uptake of the FlashBlade portfolio (including FlashBlade//E) coupled with robust Evergreen//One subscription sales. The company is likely to benefit from continued momentum in its FlashArray and FlashBlade businesses going ahead. Frequent product launches and an increasing customer base are tailwinds. The rapid proliferation of generative AI is expected to boost demand for the company’s products. Management continues to expect revenue growth in the mid-to-high single digits for fiscal 2024.
However, challenging global macroeconomic conditions and stiff competition in the flash-based storage market remain concerning.
Pure Storage carries a Zacks Rank #3. The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged at $1.43 per share in the past 60 days. Its long-term earnings growth rate is pegged at 14.8%. Shares are up 19.5% in the past year.
Price and Consensus: PSTG
Teradata: Teradata is a leading provider of hybrid cloud analytics software.
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 AI 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. However, stiff competition in the analytic data solutions market is a threat. Weakness in the APJ and China regions is a headwind.
Shares of Teradata, which carries a Zacks Rank #3, have gained 42.9% in the past year.
The Zacks Consensus Estimate for 2023 earnings for the company is pegged at $2.01 per share, up 1.5% in the past 60 days. Its long-term earnings growth rate is pegged at 18%
Price and Consensus: TDC