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Hardware Market Gains Traction on Cloud Business: 5 Winners

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Zoom Video Communications (ZM - Free Report) on Jun 17 said that it will allow all users of its videoconferencing software to enable end-to-end encryption of calls starting with a beta next month. Zoom, which has grown in popularity since the coronavirus outbreak with more people working and learning remotely, has been criticized immensely for its inflated encryption claims.

Zoom’s announcement comes at a time when tech companies are increasingly shifting focus to cloud business. Almost all big tech players have been expanding in this area and Zoom’s story too has been no different. That said, remote working and learning has not only been helping companies involved in cloud business but also hardware and computer peripheral business, which has been growing fast. In a way, cloud business and the computer peripherals market is complementing each other due to the pandemic.

Tech Giants Expand Cloud Business

Zoom on Wednesday announced that it will allow end-to-end encryption for all its users from next month. The company had earlier said that this protection would only be for paid customers. Zoom has also been facing harsh criticism since the beginning of the COVID-19 pandemic for failing to beef up its security despite huge surges in user growth as Zoom and similar services became virtual hangout tools during lockdowns.

Zoom isn’t only tech giant expanding its cloud business. Earlier this week, Microsoft Corporation (MSFT - Free Report) and SAS jointly announced a strategic partnership making Azure, the preferred cloud platform for SAS's analytics portfolio.  Alibaba Group Holdings Limited (BABA - Free Report) too has been aggressively expanding it cloud network. In April, Alibaba said that it would invest an additional $28 billion over the next three years to build next-generation datacenters.

Computer Peripherals, Networking Sales Get a Boost

A number of companies are expecting their cloud usage to exceed plans due to the impacts of the COVID-19 pandemic as families connected via video conferencing as social distancing measures are preventing them from seeing loved ones. Also, schools are holding lessons via video conference, while hospitals are using technology to lower the risk of infection.

This has been giving a boost to demand for video collaboration equipment, which has seen a surge in sales of networking equipment and hardware like laptops, webcams, keyboards, mouse and headsets. The global computer hardware market is expected to witness a CAGR of 5% from 2021 and reach $1036.6 billion in 2023 according to analysis by top players, Hewlett Packard Enterprise Company (HPE - Free Report) , Apple, Inc. (AAPL - Free Report) and International Business Machines Corporation (IBM - Free Report) .

Our Choices

The at-home culture is here to stay for a longer time than expected with no signs of the pandemic easing. Demand of computer hardware and network software driven by an expansion in cloud business will only grow in such a situation. Here were recommend five stocks that deal in cloud business, and computer hardware and network software that are likely to gain from this situation.

Logitech International (LOGI - Free Report) is a global leader in peripherals for personal computers and other digital platforms. It develops and markets innovative products in PC navigation, Internet communications, digital music, home-entertainment control, video security, interactive gaming and wireless devices.

The company’s expected earnings growth rate for the current year is 51%. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the past 60 days.  Logitech sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zoom Video Communications, Inc.’s cloud-native unified communications platform, which combines video, audio, phone, screen sharing and chat functionalities, makes remote-working and collaboration easy.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 181% over the past 60 days. Zoom sports a Zacks Rank #1.

Box, Inc. (BOX - Free Report)  is a provider of a cloud content management platform. The platform enables internal and external collaboration on content, automation of content-driven business processes, development of custom applications, data protection, security and compliance features.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 32.4% over the past 60 days. Box carries a Zacks Rank #2 (Buy).

Mercury Systems Inc (MRCY - Free Report)  produces hardware products, including components such as power amplifiers and limiters, switches, oscillators, filters, equalizers, converters, chips, integrated circuits, and memory and storage devices.

The company’s expected earnings growth rate for the current year is 17.4%. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the past 60 days.  Mercury Systems carries a Zacks Rank #2.

Avalara, Inc. (AVLR - Free Report)  is a provider of cloud-based tax compliance solutions. It helps businesses of all sizes achieve compliance with transaction taxes including sales and use, VAT, excise, communications and other tax types. 

The company’s expected earnings growth rate for the current year is 58.3%. Its shares have gained 10.1% over the past 30 days. Avalara carries a Zacks Rank #2.

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