The tech sector’s earnings season is coming to an end. It’s been a mixed bag.
Slowing economic growth and rising interest rates dampened revenues. Some of the biggest names in tech have failed, leading to rare sales. Meta META,
and GOOG Alphabet,
come to mind.
While high-flying tech companies may see their growth suspended, it will likely be a group of stable, incumbent enterprise tech companies that scale up and deliver.
In a recent column, I highlighted trends in deflationary technologies such as automation and artificial intelligence (AI), and high-end consumer products being a safer game. ServiceNow NOW,
topped the list.
As enterprises seek to reduce costs, they will turn to essential technologies, including infrastructure, security, data and AI, to maintain and accelerate productivity while ensuring they meet the needs compliance and security across their entire IT environment. Much of this will come from maximizing existing software, assets and plumbing that often comes from traditional IT and software vendors, many of which have been classified as legacy technology companies.
the Cisco CSCO,
the strong recent quarter, in which the company beat analyst estimates and raised forecasts, can serve as a reminder — and indicator — that enterprise-centric companies that have long trumped big tech companies fast-growing are the ones investors should seek out for a good balance of risk and reward.
Five software and infrastructure companies to watch
Juniper: Juniper JNPR,
delivered a beat and raise quarter. The company is well positioned for a stable performance in the infrastructure space and has done well in recent years to diversify from its telecommunications roots to expand into areas such as enterprise and cloud. The company doubled down on its AI-focused architecture and cybersecurity businesses. I see Juniper, like I see Cisco, being in the right place at the right time. The business should be able to capitalize on critical infrastructure spending to strengthen enterprise IT and security.
Hewlett Packard Enterprise: Hewlett Packard Enterprise HPE,
has been in a years-long transition from a large iron infrastructure company to what CEO Antonio Neri has described as an “everything as a service” business. Its GreenLake portfolio has been at the forefront of a consumption-based private cloud trend connecting the enterprise data center to the public cloud. Priced relatively cheap with a price-to-earnings (P/E) ratio of 5.5, the company is rapidly approaching $1 billion in annual recurring revenue (ARR), which is a significant milestone in its transition to subscription. However, the title yields 3.08%. Growth has been harder to come by for HPE during the pandemic, but as we see IBM and Cisco doing well, this could be a positive sign for HPE when it reports results next week.
Oracle: With more than 70% of its predictable revenue, Oracle ORCL,
is one of the most stable software names out there. The company has a robust core business that its customers depend on in all macro climates, which is why it’s hard not to see Oracle as a safer tech play today. Its rapidly growing cloud offering complements its stable core business, which has collectively surpassed $10 billion in revenue per year and continues to grow through its cross-selling strategies, coupled with strong performance from its NetSuite and Fusion offerings. In total, investors get a mix of stability, yield and growth
SAP: While SAP SAP,
and Oracle can trade jabs on their quarterly earnings, they share common properties that make them interesting games for investors. SAP has also leaned heavily into its cloud business, and while it doesn’t deal with infrastructure as a service like Oracle does, it has seen rapid growth in moving its customers to the cloud. . With 80% of the company’s revenue now falling under what it considers “more predictable revenue”, the company saw its cloud revenue increase by 38% in the third quarter – or 25% at exchange rates steady – while its cloud backlog grew at the same rate. Currency headwinds have been even tougher for the German software giant, but its highly predictable earnings, coupled with its cloud growth and nearly 2% yield, provide a balance for investors.
Selling power : Down more than 50% from its 12-month highs, there are significant concerns about Salesforce CRM,
In particular, there is a likelihood of a slowdown in business spending. However, as companies lay off employees, the need for mission-critical systems of record that can be quickly deployed in the cloud is opportunity enough, and Salesforce could be in a great position to take advantage of it. Like ServiceNow, Salesforce offers automation, AI, and other SaaS tools businesses can use for sales, marketing, and service. And with its consumption-based usage model, businesses can scale their services faster to meet business needs. It still trades at a high multiple, making it a riskier bet, but one that has great long-term potential. Salesforce will likely accelerate the second the economy recovers.
Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advice or consultation to Oracle, Cisco, Juniper and dozens of other technology companies. Neither he nor his firm holds any stake in the companies mentioned. Follow him on Twitter@danielnewmanUV.
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Opinion: These five tech stocks offer investors a better reward for their risk – CNET
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