4 Stocks to Buy That Are Winning From Massive Cloud Growth

May 11, 2017 by Lee Jackson

Every day, consumers are affected by the cloud in some way, shape or form. The ubiquitous presence is in everything from data storage to streaming content to cloud computing to a million items that are ancillary but still directly related to performance from the cloud. That exposure to everyday life will only grow as the Internet of Things (IoT), artificial intelligence (AI) and consumer technology continue to grow.

A new RBC research report notes that the largest cloud and hyperscale providers spend a staggering $60 billion in total capital expenditures each year. Cloud service provider capex grew 8% year over year in the first quarter but declined 14% quarter over quarter. However, the second quarter is expected to grow 17% quarter over quarter and a staggering 19% year over year. The report noted:

We believe that there continues to be opportunity for increasing average selling prices and continued mix-shift to IT hardware-spend, including server CPUs and increased storage spend, as cloud data growth continues to outpace the overall market.

Semiconductor and hard disk drive (HDD) companies stand to benefit the most, and these four top companies are the big winners.

Broadcom

This stock has been on fire over the past year and remains a top pick across Wall Street. Broadcom Ltd. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets. Applications for Broadcom’s products in these end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand. Broadcom will report its most recent quarterly results at the end of this month.

Broadcom investors are paid a 1.76% dividend. The Wall Street consensus price target for the stock is $249.03. Shares closed most recently at $231.33.

Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers, and the IoT is a big part of the shift. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

Earlier this year the company announced the purchase of Mobileye for $15.3 billion. The Israel sensor company gives the chip giant a leg up in the autonomous car competition, and it also adds many other capabilities. This is a big IoT segment going forward.

First-quarter numbers were affected by lower data center spending, but with second quarter and year-over-year numbers expected to grow, the tech giant is well positioned for the future.

Intel investors are paid a 3.03% dividend. The consensus price objective is $40.15. The shares closed most recently at $36.01.


NVIDIA

This top chip company reported strong earnings all last year and also was the top performing stock in the S&P 500 in 2016. NVIDIA Corp. (NASDAQ: NVDA) is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.

NVIDIA is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.

Top Wall Street analysts feel the stock is maturing to a platform company from a pure chip company, and Jefferies sees the stock continuing to benefit from four secular trends: virtual reality, PC gaming, chips in the automobile industry and graphic processing units (GPUs) in the cloud.

The company posted gigantic first-quarter results that well exceeded Wall Street estimates, with much of the gains directly from the firm’s huge data center and AI business. NVIDIA reported net income that more than doubled.

Investors are paid a 0.55% dividend. The posted consensus price target is $109.97, and that is sure to go higher in the coming days. The shares closed up huge on Wednesday at $121.29.

Western Digital

This long-time innovator in the storage industry is a leader in the total addressable HDD market. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content.

Western Digital is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.

The most compelling news for 2017 and beyond is that the company made a stunning $19 billion purchase of SanDisk last year. This could be a strong addition to Western Digital’s current offerings, and the company could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.

The company reported quarterly earnings that beat on the top and bottom lines as did its second-quarter outlook, sending the stock up big.

Western Digital shareholders are paid an attractive 2.23% dividend. The consensus price objective is set at $110.57. Shares closed most recently at $89.54.

Any way you slice it, cloud capital spending will continue to grow, and all these companies benefit. That is in addition to their other product lines. While only suitable for accounts that have a higher risk tolerance, these stock offer solid upside going forward.

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