6 Top Picks for 2020 Technology Spending Trends
In a recent report, Nomura highlighted that webscale spending growth is accelerating in the U.S. As a result, Nomura has picked some companies that it sees benefiting the most from the growth in webscale spending this year, and even into…
In a recent report, Nomura highlighted that webscale spending growth is accelerating in the U.S. As a result, Nomura has picked some companies that it sees benefiting the most from the growth in webscale spending this year, and even into 2020.
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Overall, webscale spending has risen from -5% in the first quarter to 20% in the third quarter, although this missed the consensus estimate of 31% growth. While this lowers Nomura’s 2019 outlook to 13% webscale spending growth from 17%, it builds into the firm’s high-teens growth for the 2020 full year.
U.S. spending fell 5% in the first quarter before recovering to 12% growth in the second quarter and now 20%. This was not the expected 31% growth. And all six US webscalers posted spending below estimates, led by Facebook (-3% quarter over quarter vs. +22% estimate), Amazon (up 17% vs. 26%), and Apple (up 39% vs. 62%).
Nomura further detailed in the report:
While our field work shows a long runway for public cloud, growth is undeniably slowing. AWS growth, once >50%, is now 35%. Azure growth, once >100%, is now 59%. Webscale spending growth, 25-45% from 2016-18, is set for a 10-20% advance through 2020E. The memory upcycle likely drove much of the 2016-18 growth; bottoming prices could help drive a 2020E recovery. The Street is modeling 17% YoY growth in global spend next year, above our prior 16% estimate, though from a lower 2019E. Amazon and Microsoft’s outlook rose; Alibaba, Tencent, and Facebook’s fell.
The research firm’s preferred networking plays are Juniper Networks, Inc. (NYSE: JNPR) and Ciena Corp. (NYSE: CIEN). Juniper posted a second consecutive quarter of year over year growth in Cloud. Ciena sales should decelerate in 2020, though 6% plus remains healthy.
Nomura’s preferred semiconductor plays are Advanced Micro Devices, Inc. (NASDAQ: AMD) and Intel Corp. (NASDAQ: INTC). The firm thinks AMD’s share gain momentum in both data center CPUs and GPUs and Intel’s mid-teens growth potential in its data center group make both stocks attractive webscale plays.
Finally, Nomura also prefers Alphabet Inc. (NASDAQ: GOOGL) and Microsoft Corp. (NASDAQ: MSFT). Alphabet’s Google Cloud Platform is now at an $8 billion run-rate and continues to scale with expanding headcount, M&A, and external partnerships. Microsoft derives a third of sales from Intelligent Cloud and grew Azure 59% year over year in the third quarter.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
