Cisco or nVidia: Best Stock to Play Internet Infrastructure Boom?

by Trefis Team
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The coronavirus pandemic is accelerating the trend of digitization, as people spend more time on the Internet to work, learn, shop, and entertain themselves. The growing requirement for connectivity and computing power could, in turn, drive demand for infrastructure that powers the internet,  helping a diverse set of companies ranging from semiconductor firms that sell server processors (CPUs), graphic cards (GPUs), and memory, to networking players that sell fiber-optic connections and switches. Our Theme of U.S. listed Internet Infrastructure stocks, which includes names such as Intel, Nvidia, Cisco, and Micron has outperformed the broader market, with returns roughly flat year to date on an equally weighted basis, compared to the S&P 500 which is down around 13%. Below, we take a look at some of the hardware and solutions providers that could benefit as more everyday activity moves online, during, and post, the coronavirus pandemic.

Nvidia (+32% YTD, $191 billion market cap) While Nvidia is best known for its graphics processors, the company’s GPUs are increasingly favored over CPUs in cloud data centers involved in the artificial intelligence and deep learning space. The company’s data center business has grown by about 54% over the last 2 years, compared to its broader revenue which was up by about 12% in the same period. As more applications leverage deep-learning, it’s likely that demand will grow further.

Micron (-19% YTD, $48 billion market cap): Micron is a major player in the memory chip space, producing NAND and DRAM chips. While the company has been seeing subdued demand from the smartphone markets, this is being offset by strong demand from the expansion of data centers in both enterprises and the cloud infrastructure space. (View our indicative theme of Cloud Infrastructure As A Service Service stocks)  This could be a net positive for the company, as both storage and DRAM chips used in servers are usually more expensive compared to chips used in personal computing devices.

Cisco (-11% YTD, $178 billion market cap) designs and sells networking software, and products, including equipment such as switches and routers, which underpin the Internet. The company recently reported Q3 results and indicated that it was witnessing soaring demand for its video conferencing and virtual private network (VPN) software through the pandemic, as many enterprises move entirely online. The company could eventually see demand for its networking gear also rise.

Intel (down 3.1% YTD, $245 billion market cap) the largest CPU maker is also benefiting from the work-from-home economy, as sales at its server business have been soaring as data center operators invest in upgrades and hardware additions in order to cope with growing demand. For the quarter ended March, the company posted a 23% year-over-year increase in revenues, with its data center revenues growing 43%.

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