6 Top Picks for 2020 Technology Spending Trends

November 25, 2019 by Chris Lange

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.
[in-text-ad]
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.

Take This Retirement Quiz To Get Matched With An Advisor Now (Sponsored)

Are you ready for retirement? Planning for retirement can be overwhelming, that’s why it could be a good idea to speak to a fiduciary financial advisor about your goals today.

Start by taking this retirement quiz right here from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes. Smart Asset is now matching over 50,000 people a month.

Click here now to get started.