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The Networking Revolution: Unveiling 3 Advanced Tech Stocks for Savvy Investors

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Amid global economic challenges and shaky supply chain landscapes, the Zacks Computer โ€“ Networking industry is undergoing a period of turbulence. However, the rise of cloud computing, network security, big data, and cloud storage signals a promising future for industry players. With the accelerated rollout of 5G technology paving the way for the Internet of Things (IoT) and cutting-edge devices like 5G smartphones, solid networking infrastructure has never been more crucial. In light of these developments, attention turns to key players like Infinera Corporation INFN, NETGEAR Inc NTGR, and Intrusion Inc INTZ.

Industry Description

The Zacks Computer โ€“ Networking industry is a hub for companies that provide a range of networking and Internet-connected products, from wireless technologies to Ethernet solutions. These products cater to diverse consumer demands across various geographical regions. Beyond traditional offerings, many industry players are venturing into mission-critical IoT solutions and network security services to support the burgeoning market for connected devices and next-gen communication infrastructures. Notably, the industryโ€™s focus on IoT sensors, drones, wearables, and cloud-based applications like contact tracing apps is driving innovation and reshaping the technological landscape.

4 Trends Influencing the Industryโ€™s Future

Revolutionary Networking Tech Drives Business Opportunities: The surge in Smart Home devices, IoT products, and cloud-based services is propelling innovation in networking solutions. The integration of AI, ML, and cloud computing in network security is fueling the demand for sophisticated network infrastructure. Technologies like Software-Defined Networking aim to meet the evolving needs of companies managing vast device ecosystems. Innovation in networking technologies remains a key driver for industry growth.
5G Expansion Sparks Growth: The rapid adoption of 5G technology driven by the demand for network-dependent applications like video conferencing has compelled significant infrastructure upgrades globally. Investments in LTE, broadband, and fiber optics to enhance network capabilities are essential for supporting connected homes, smart cities, and autonomous vehicles. The proliferation of 5G heralds a new era of connectivity and promises growth for networking firms.
Wi-Fi 6E Emerges as a Market Game-Changer: With cutting-edge technology and high-speed connectivity becoming industry norms, the rise of Wi-Fi 6E devices such as routers, gateways, and wireless extenders is reshaping the networking sector. Wi-Fi 6E addresses bandwidth challenges and supports a higher number of connected devices without compromising speed, laying the foundation for seamless connectivity for consumers and enterprises alike.
Economic Uncertainty Casts a Shadow on IT Spending: Despite the industryโ€™s advancement, macroeconomic challenges and supply chain disruptions loom large. Inflation and economic turbulences may impact spending trends among businesses globally. The slow progress in IT spending forecasted by Gartner underscores the cautious outlook for tech investments amidst uncertain times.

Industryโ€™s Ranking Reflects Near-Term Challenges

Nestled within the broader Zacks Computer and Technology sector, the Zacks Computer โ€“ Networking Industry flaunts a Zacks Industry Rank of 165, placing it among the lower tier of over 250 Zacks industries. The subdued industry forecast underlines prevailing challenges, with historically stronger industry performers paving the way for potential investments. Before delving into specific stock recommendations, letโ€™s explore the recent market performance and valuation landscape of the industry.

Industry Trails S&P 500 and Sector Averages

Over the past year, the Zacks Computer โ€“ Networking industry has lagged behind both the S&P 500 index and the broader Zacks Computer and Technology sector. While the industry saw a decline of 7.2%, the sector marked an impressive 42.8% surge during the same period. Comparatively, the S&P 500 index exhibited a growth of 27.2% within the same timeframe.

Price Performance and Valuation Overview

The industryโ€™s forward 12-month price-to-earnings ratio (P/E) currently stands at 15.26X, below the S&P 500โ€™s 21.19X and the sectorโ€™s 26.54X. The industryโ€™s P/E ratio has ranged from 12.56X to 20.33X over the past five years, with current levels indicating favorable valuation metrics for investors exploring potential opportunities in the networking sector.

Forward 12-Month P/E Ratio



Top Computer Networking Stocks for Investors

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Intrusion: A Cybersecurity Gem in Plano, TX

Intrusion, headquartered in Plano, TX, is making waves in the cybersecurity realm. Their Shield products are proving to be popular, with the company securing seven new clients for this suite in the last quarter of 2023. Intrusionโ€™s management is optimistic about the revenue growth prospects of Shield products in 2024, driven by new clients and an evolving sales pipeline. However, a dip in consulting revenues last quarter has raised some concerns, causing revenues to slide by 5% year-over-year to $1.4 million.

Currently, Intrusion holds a Zacks Rank #2 (Buy), and analysts estimate a loss of $2.68 per share for 2024, an improvement from a $7.80 loss reported 60 days ago.

NETGEAR: Innovating Networking in San Jose, CA

NETGEAR, based in San Jose, CA, is a key player in the global telecommunications industry. Known for its cutting-edge networking and Internet-connected products, NETGEAR is thriving due to the strong demand for its premium CHP products, including Orbi 8 and 9, tri and quad-band WiFi mesh products, and 5G Nighthawk Mobile Hotspots. The company is poised to benefit from the WiFi 7 upgrade trend and overall market shifts. NETGEARโ€™s meticulous cost management is boosting profitability, while frequent product introductions bode well for long-term growth.

Notwithstanding its successes, NETGEAR faces challenges in its SMB and CHP business segments, primarily due to inventory reductions and external economic trends. The retail sector of its CHP business is expected to see a dip in the first quarter of 2024 post the holiday season. With a Zacks Rank #3 (Hold), analysts predict earnings of 28 cents per share for 2024.

Infinera Corporation: Pioneering Digital Optical Networking

Infinera Corporation, based in San Jose, CA, is a prominent provider of Digital Optical Networking systems to global telecommunications companies and service providers. The company has been securing strategic deals with major service providers worldwide, driving growth in its GX Systems portfolio. Notably, Infinera recently announced the commercial availability of 400 gig XR pluggables and shipped its first Metro systems equipped with vertically integrated pluggables. Management believes that leveraging pluggables in Metro systems will fuel margin expansion in the later part of 2024.

Despite expecting a slow start in the first half of 2024, Infinera remains optimistic about its performance. The company anticipates revenues between $320 million and $350 million in the first quarter of 2024. Holding a Zacks Rank #3 (Hold), Infineraโ€™s estimated earnings for 2024 stand at 24 cents per share.

To explore more financial insights, visit Zacks.com.


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