Technology

4 Stocks Will Benefit From Huge Data Center Spending and Metro Optical Build

The huge growth in networking and data centers should come as little surprise to investors that follow technology. The incredible and sustained growth in capital expenditures in the sector is expected to be as high as a whopping $15 billion per year. A new research report from Deutsche Bank features four outstanding stock ideas to play this gigantic growth.

While the Deutsche Bank team doesn’t take any huge chances with their stock picks, it does seem that they have narrowed the candidates to those most likely to benefit from capital expenditures for data center optical and for metro roll-outs. With huge cloud computing, video and audio streaming, and storage demands incrementally increasing, the demand isn’t going away anytime soon. All four of the stocks are rated Buy at Deutsche Bank.

Cisco

This is one of the top mega-cap technology stock picks on Wall Street and perhaps a surprising defensive pick for volatile markets like we have witnessed. Cisco Systems Inc. (NASDAQ: CSCO) posted outstanding earnings in August, and many on Wall Street have raised price targets for the networking giant significantly higher. Cisco is also one of the 24/7 Wall St. top 10 stocks to own for the next decade.

Earlier this year, Cisco won an important contract for the Verizon build-out of its next-generation 100G metro network. While Cisco’s optical business is small as a part of total revenue, this win is seen by Wall Street as a significant endorsement of the investments Cisco has made into its optics business. The Deutsche Bank research suggests that Cisco is likely to introduce 100G+ data center optical platforms sometime next year, and it targets the Web 2.0 and cloud customer base, in addition to sales opportunities in carrier-neutral data centers.

Analysts across Wall Street point to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. Many think that Meraki is likely to be a $1 billion plus run-rate business this year, with an incredible 50% to 70% compounded annual growth rate. A jump from 40 GE to 100 GE data center switching and next generation security are also adding to the total sales profile and product mix.

Cisco investors are paid a very solid 2.88% dividend. The Deutsche Bank price target for the stock is $35, and the Thomson/First Call consensus target is $31.14. The shares closed most recently at $29.

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