While the Trump rally has been incredible, much of the momentum has been a result of big moves by high-dollar stocks. Investors looking for solid growth ideas should consider the huge possibilities for technology infrastructure, due to the massive growth in cloud computing, storage and security. Combine that with the huge growth in Terabit Optical Networking, and you have the potential for some powerful gains next year from a group of stocks that are not expensive.
In a new and outstanding research report, Dr. Vijay Bhagavath and his team at Deutsche Bank make the case that new infrastructure themes are numerous and powerful, and they list four areas they see big growth potential in:
- Security is thematically transitioning from “boxes” to “software and cloud based.”
- Top corporates are building “hybrid clouds” with on/off ramps to public clouds.
- We are in “early days” of a multiyear optical build-out cycle.
- 5G wireless and Internet of Things (IoT) are a “mega theme.”
Deutsche Bank is very positive on eight companies that are prominent in the sector, and here we focus on four that appear to have the biggest upside potential.
This had a red-hot IPO and has backed up huge since a secondary offering last fall. It is the top Deutsche Bank small cap idea. Acacia Communications Inc. (NASDAQ: ACIA) is a leading supplier of high-speed coherent optical interconnect products to network equipment manufacturers, hyperscale cloud companies and service providers. The company’s foundation is in its Digital Signal Processing (DSP) and a unique approach with its silicon-based photonic integrated circuit (SiPhi PIC). The company primarily combines the DSP and PIC to create modules, which are integrated into optical/networking equipment to provide high-speed optical interconnect.
Top Wall Street analysts have increased estimates following Acacia’s positive preannouncements, and while some were underwhelmed by fourth-quarter guidance, the company is adding new customers and demand is strong, with little competition. In addition, analysts expect that Facebook will use Acacia’s AC400 transponder module, with 400G dual-channel coherent digital signal processing application specific integrated circuit.
Acacia continues to benefit from strong demand across Web 2.0 direct customers, Chinese original equipment manufacturers and metro 100G cycles. Acacia additionally is benefiting from strength in China broadband optical roll-outs. Deutsche Bank noted in its report:
Our Top Small Cap Idea levered to double-digit growth trends in 100G+ (scaling to a Terabit in FY18+).Optical rollouts at Hyperscale Clouds and Service Providers.Acacia is disrupting the Optical Component industry by leveraging CMOS photonics, DSPs, and hence Moore’s Law economics.
The Deutsche Bank price target is a gigantic $126. The Wall Street consensus target is $112.50, and shares closed yesterday at $67.44.
This company posted outstanding third-quarter numbers, and Deutsche Bank sees growth reaccelerating. Akamai Technologies Inc. (NASDAQ: AKAM) provides cloud services for delivering, optimizing and securing content and business applications over the internet in the United States and internationally.
The company offers performance and security solutions designed to help websites and business applications operate while offering protection against security threats. It also provides media content delivery solutions that are designed to deliver movies, television shows, live events, games, social media, software downloads and other content on the internet in fixed-line and mobile networks; adaptive delivery solutions for streaming video content; and download delivery solution that offers accelerated distribution for large file downloads, including games, progressive media files, documents and other file-based content.
The company guided fourth-quarter numbers much better than expected, and the analysts noted that the focus on cloud security, which was 40% of the compounded annual growth rate, and enterprise security are potential growth drivers going forward.
The analysts noted in the report:
We note Akamai recently acquired Soha Systems (October 2016), a “Cloud Based” provider of secure access to Enterprise Applications (i.e. Cloud VPN , Application Delivery and Virtual Desktop as a Service, etc). The Soha deal adds incremental conviction to our view on Akamai “doubling down” on Cloud Security via organic and inorganic strategies, enhancing the longer-term enterprise value of the company through an architecturally sticky and mid double-digit growth Cloud Security business.
The Deutsche Bank price target is $75. The consensus price target is $66.89. Shares closed yesterday at $64.25.