The participants in the Zacks Computer - Networking industry are expected to benefit from the networking infrastructure overhaul driven by AI workloads, cloud computing, big data, network security and next-generation connectivity.

The proliferation of AI workloads and hyperscale data centers is fueling investments in high-speed interconnects, optical networking and Ethernet switches. Players in this space are focused on capitalizing on the multi-billion-dollar AI infrastructure opportunity. The rapid deployment of 5G is fueling the proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems, Augmented Reality/Virtual Reality (AR/VR) devices and 5G smartphones, driving demand for robust networking infrastructure. The Wi-Fi 7 upgrade cycle will act as a catalyst.

Also, the explosion of AI workloads requires a major upgrade to observability infrastructure. There is a greater need for continuous monitoring of hybrid environments and tighter security amid rising attacks. This will spur demand for innovative networking products, favoring prospects for prominent industry players such as Cisco (CSCO Quick QuoteCSCO - Free Report) , Extreme Networks (EXTR Quick QuoteEXTR - Free Report) and Lantronix (LTRX Quick QuoteLTRX - Free Report) .

Nonetheless, cautious IT spend amid heightened uncertainty over global macroeconomic conditions and volatile supply-chain dynamics due to ongoing tariff troubles continues to be concerning. Fierce competition is an overhang on pricing power and margin expansion. 

Industry Description

The Zacks Computer-Networking industry comprises companies that offer networking and Internet-connected products, including wireless (Wi-Fi and Long-Term Evolution or LTE), Ethernet and powerline, focusing on dependability and ease of use. The products are available in numerous configurations to cater to the changing requirements of consumers in each geographic territory where it operates. Some industry players also provide mission-critical IoT solutions and network security services to help clients build next-generation connected products, and implement and manage critical communications infrastructures in demanding environments with enhanced safety levels. Focus on developing IoT sensors, drones and wearables amid increasing demand for cloud computing-based contact tracing applications is driving the industry.

4 Trends Influencing the Industry's Future

Technological Advancement Opening Business Avenues: The rapid proliferation of AI and high adoption of cloud and data-intensive applications is driving demand for advanced optical networking, high-speed interconnects, Ethernet switches, routing and wireless infrastructure. Expansion of industrial IoT and edge computing, and the increasing popularity of smart connected devices, are further creating growth opportunities. Rising cybersecurity concerns are emerging as a key tailwind, driving demand for solutions such as threat detection, network monitoring and zero-trust security architectures. 

Rapid Deployment of 5G to Boost Growth Prospects: The success of the 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support growth in data services. Efforts to develop smart connected homes, hospitals, factories, buildings, cities and self-driving vehicles bode well for industry players. These firms invest heavily in LTE, broadband and fiber to provide additional capacity and improve Internet and wireless networks. These initiatives hold promise.

Wi-Fi 7 Upgrade Cycle to Drive Momentum: Brisk technological advancement, dynamic products, high-speed connectivity, low latency and evolving industry standards define the Computer-Networking industry. The growing clout of the latest Wi-Fi 6E-compliant residential gateways, Wi-Fi routers, set-top boxes and wireless range extenders is a testament to the same. The increasing demand for connecting more devices to the network has been driving demand for Wi-Fi 6E devices. Wi-Fi 6E addresses Wi-Fi spectrum shortage issues by providing continuous channel bandwidth to support a higher number of connected devices without compromising speed. The rollout of Wi-Fi 7 bodes well for the companies in this space.

Macroeconomic Turmoil Is Concerning: Global macroeconomic weakness and volatile supply-chain dynamics are persistent concerns. Tariff troubles, especially between the United States and China, remain an overhang on global supply chains. Inflation could affect spending across small and medium-sized businesses globally, and uncertainty in business visibility could dent the industry’s near-term performance.

The computer networking industry remains highly competitive, with a large number of established and new players vying for market share. As growth stabilizes, competition often intensifies, leading to pricing pressure and margin compression. 

Zacks Industry Rank Indicates Bright Near-Term Prospects

The Zacks Computer-Networking Industry is housed within the broader Zacks Computer and Technology sector. The industry carries a Zacks Industry Rank #75, positioning it in the top 31% of more than 244 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 two to one.

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 the S&P 500 and the Sector

The Zacks Computer-Networking industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.

The industry has gained 56.4% over this period, compared with the broader sector’s 53.8% rally. The S&P 500 has appreciated 31.8% over the same time frame.

One-Year Price Performance
 

Industry's Current Valuation

Based on the forward 12-month price-to-earnings (P/E) ratio, a common multiple for valuing Computer-Networking stocks, the industry is currently trading at 26.63X, compared with the S&P 500’s 22.16X. It is also higher than the sector’s forward-12-month P/E of 25.73X.

In the past five years, the industry traded as high as 26.63X and as low as 19.43X, with the median being 21.5X, as the charts below show.

Forward 12-Month P/E Ratio

3 Computer-Networking Stocks to Add to Watchlist

Cisco Systems: Headquartered in San Jose, CA, the company offers identity and access, advanced threat and unified threat management solutions.

Cisco is benefiting from the demand for AI Infrastructure solutions. Within Networking, CSCO is seeing heavy demand for data center switching, campus switching, service provider routing, wireless, servers and industrial IoT products. Acacia business is also witnessing strong growth as hyperscalers deploy both 400G and 800G coherent optics, with 800G pluggables gaining significant traction. 

The company expects its networking portfolio, led by Silicon One, AI native security solutions and operating systems, to support top-line expansion moving forward. Buoyed by strong demand, CSCO now expects AI orders to reach more than $5 billion in fiscal 2026 and recognize more than $3 billion in AI infrastructure revenues from hyperscalers. For fiscal 2026, revenues are expected to be between $61.2 billion and $61.7 billion. 

The networking giant posted 10% year-over-year revenue growth in the second quarter of fiscal 2026. Product revenues were up 14%. 

Higher demand led to an 18% year-over-year increase in product orders. CSCO highlighted that the demand was “broad-based”, as even without hyperscalers, product orders went up 10% year over year. AI infrastructure orders from hyperscalers stood at $2.1 billion in the reported quarter compared with $1.3 billion in the fiscal first quarter. The orders were equal to the total orders taken in fiscal 2025, underscoring robust demand for its silicon, systems and optics, added Cisco.

CSCO returned $3 billion to its shareholders through repurchases and dividends in the last reported quarter. 

At present, CSCO carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

The Zacks Consensus Estimate for fiscal 2026 bottom line stands at $4.17, up 1 cent in the past 30 days. Shares have gained 56.6% in the past year. 

Price & Consensus: CSCO

Extreme Networks: Based in Morrisville, NC, the company provides AI-driven cloud networking solutions. Strong demand for the company’s networking solutions is driving revenues, as reflected by 11% year-over-year revenue growth in the third quarter of fiscal 2026. Product revenues were up 12% from the prior-year quarter. 

Extreme’s launch of Platform ONE and pivot to a recurring model is supporting growth amid solid enterprise networking demand. Platform ONE is an AI-driven, holistic networking solution. Momentum in subscription bookings is expected to grow with the adoption of Platform ONE and drive up SaaS annual recurring revenues (“ARR”). In the fiscal third quarter, SaaS ARR rose 29% year over year to $236 million. 

Management also noted that Cisco’s product refresh cycle and integration challenges at HPE-Juniper are aiding it in gaining market share. Extreme Networks closed 44 deals, each worth more than $1 million, signaling stronger deal quality and strategic growth.

Wi-Fi 7 is emerging as a key catalyst, driving network refresh cycles. EXTR has also secured its supply chain through fiscal 2027, improving fulfillment certainty and margin visibility. 

Driven by strong momentum, EXTR expects revenues to be $1.275 billion to $1.28 billion for fiscal 2026. 

At present, EXTR carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2026 earnings is $1.04, unchanged in the past seven days. Shares are up 53.5% in the past year. 

Price & Consensus: EXTR

Lantronix: Based in Irvine, CA, Lantronix specializes in providing Industrial and Edge AI IoT solutions for high-growth applications in certain verticals, including enterprise IT, smart cities and commercial and defense unmanned systems. 

The company recently reported third-quarter fiscal 2026 results, wherein revenues came in at $30.2 million, primarily driven by its Embedded IoT Solutions segment. This segment's revenues were up 22% year over year, buoyed by increasing demand for unmanned systems, which have quickly emerged as a key revenue driver. 

In the last reported quarter, LTRX noted that it had increased the number of OEM engagements and shipped to more than a dozen partners. The demand for unmanned/autonomous systems has been gaining traction due to industry and military tailwinds, as well as a ban on foreign drone makers.  

The company is also expanding its footprint into counter-UAS and spectrum dominance applications. 

For fiscal 2026, the company has raised its fiscal 2026 drone revenue outlook to a range of $10 million to $14 million, with a midpoint of $12 million. For fiscal 2027, it expects drone revenues to almost double and comprise 15% to 20% of the total revenues. 

However, the company anticipates that its core enterprise and networking segment will remain pressured in the near-term due to slower federal spending and elongated procurement cycles.

At present, LTRX carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for fiscal 2026 earnings is 18 cents per share, unchanged in the past 30 days. Shares have gained 201.2% in the past year.

Price & Consensus: LTRX