It doesn’t take a market genius to figure out that the information technology (IT) and networking sentiment is horrible. Just look at the daily drubbing the technology sector continues to take. Also look at the late to the party bears, who apparently now see nothing but doom and gloom.
The bottom line is that while sentiment is weak, Web 2.0 and cloud IT demand remains very strong, and in a new research report, Deutsche Bank thinks that the exponential growth in the 100G data center switching refresh could prove to be a $1 billion opportunity this year, and top companies in the firm’s coverage universe stand to benefit.
Four stocks are rated Buy at Deutsche Bank, and all could benefit from the spending onslaught.
This company went public in the summer of 2014 and has continued to be one of the hot tech stories. Arista Networks Inc. (NYSE: ANET) delivers software-driven cloud networking solutions for large data center and computing environments. In addition, its 10/40/100 gigabit Ethernet switches offer scalability and performance, and they have over 2,700 customers and more than 2 million cloud networking ports deployed worldwide. At the core of Arista’s platform is EOS, an advanced network operating system. Arista Networks products are available worldwide through distribution partners, systems integrators and resellers.
Many on Wall Street think that the company could benefit from dual supplier requirements at the Web 2.0 and cloud portals, and they think Arista could see upside to the lofty 30% compound annual growth rates currently forecast. Some also see the stock benefiting as networking vendor that is leveraged to data center deployments.
The patent lawsuit filed by Cisco was seen as just a minor loss to the company when some of the rulings came out recently. International Trade Commission Administrative Law Judge David Shaw said Arista violated Section 337 of the Tariff Act 17 times, but declined to cite 15 other claims of violations that Cisco brought against Arista. Many on Wall Street expected Arista to engineer “workarounds” by the time the decisions are finalized.
The Deutsche Bank price target for the stock is $82. The Thomson/First Call consensus price target is $86.62. Shares closed most recently at $53.
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 disappointing earnings in November, and many on Wall Street lowered price targets for the networking giant significantly. Cisco is also one of the 24/7 Wall St. top 10 stocks to own for the next decade.
Last year Cisco won an important contract for the Verizon build-out of the company’s 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. Deutsche Bank sees the data center refresh as a positive for the company.
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 receive a nice 3.66% dividend. The $31 Deutsche Bank price target is a bit higher than the consensus estimate of $30.50. The shares closed at $22.65.