The AI Boom and Its Impact on Legacy Technologies
The year 2024 has seen a significant boom in artificial intelligence (AI) despite the ongoing normalization of many legacy technologies following the remarkable post-pandemic reopening surge in 2021. The acceleration of AI deployment is not only revolutionizing the tech industry but also revitalizing legacy technologies like cloud computing, virtualization, networking, and hard disk drives (HDDs) as enterprises navigate through the inventory glut.
Let’s delve into two computer and technology sector stocks that are poised to benefit from the surge in AI demand and the resurgence of cloud computing and legacy businesses:
1. Ciena – Powering the AI Infrastructure Buildout
Ciena Co. (NYSE:) is a prominent legacy technology company known for its optical fiber and networking solutions, crucial for establishing fast connectivity needed for AI data transfer. As AI demands rapid data transmission, Ciena’s optical transceivers play a pivotal role in enabling data to be transmitted over long distances with minimal latency. This technology, utilizing light signals, is essential for data center interconnect (DCI) that extends beyond individual data centers to connect multiple data centers and cloud providers.
Connecting the Cloud Giants and AI Platforms:
Ciena’s clientele includes major cloud providers like Alphabet’s (NASDAQ: NASDAQ:) Google Cloud, fortifying their networks to accommodate the exponential growth of AI data traffic. The surge in cloud computing has significantly contributed to Ciena’s revenue, with cloud providers driving demand for its DCI business. Enterprises are diversifying their infrastructure across multiple clouds and providers, benefiting Ciena as a key player in this industry trend.
Networking Platforms Growth:
Ciena’s recent fiscal third-quarter earnings report showcased impressive growth, with Networking Platforms segment revenues accounting for 74.2% of total revenue at $699.5 million. The company’s book-to-bill ratio exceeded one, indicating high demand driven by cloud providers expanding their infrastructure. Ciena’s fiscal fourth-quarter revenue is expected to range from $1.06 billion to $1.4 billion, aligning with consensus estimates. Moreover, its long-term compound annual growth rate (CAGR) is estimated to be between 6% to 8%, with projected revenues for fiscal 2024 around $4 billion.
2. NetApp – Harnessing the Hybrid Multicloud Tailwind
NetApp (NASDAQ:) offers hybrid cloud and data infrastructure solutions, enabling secure data access and management across all environments through a unified interface. Serving as a key player for digital transformation and cloud migration, NetApp supports on-premise, private, and public cloud setups, catering to diverse data and application needs.
AI Deployment Driving Growth:
In its fiscal first quarter of 2025, NetApp reported record non-GAAP operating margin and net income. Notably, its cloud storage services revenues surged by 40% year over year, with the Hybrid Cloud division generating substantial revenue growth. Furthermore, NetApp secured significant contracts, including partnerships with leading companies in oil and gas and financial services for AI and data lake modernization projects.
Anticipated Upside:
NetApp has issued optimistic guidance for its fiscal second quarter of 2025, projecting EPS and revenue figures that surpass consensus estimates. The company’s full-year 2025 outlook also indicates strong performance, with expected growth in both EPS and revenue.
In conclusion, the AI boom is reshaping the tech landscape and fueling growth opportunities for companies like Ciena and NetApp. By capitalizing on AI deployment trends and cloud computing advancements, these companies are well-positioned to thrive in a rapidly evolving digital era, providing investors with promising opportunities for long-term growth and success.