Dell [DELL], Hewlett Packard [HPE] and Cisco’s [CSCO] share prices are on the up as companies increase investment in moving legacy IT systems to the cloud. This acceleration started during the pandemic, driven by a demand for more connectivity.
And as the world moves out of the pandemic, the trend has only increased, with
spent on cloud infrastructure in the first quarter of 2021,
For the full year, IDC forecasts cloud infrastructure spending will hit $74.6bn, up 12.9% year on year, and outpacing the single-digit growth in non-cloud spending, which is forecast to come in at $58.5bn.
We look at what this means for Dell, Hewlett Packard and Cisco and their respective share prices.
Dell’s share price
According to the IDC report, Dell was the top beneficiary of this trend, with cloud infrastructure sales hitting $2.5bn in the first quarter, giving it a 16.9% market share. Dell’s share price is up over 84.9% (as of 6 July’s close) since the start of the year. However, since 11 June the stock has tumbled just over 5%.
That drop comes despite Dell having a blowout first quarter, delivering Non-GAAP earnings of $2.13 a share, on revenue came in at $24.5bn, up 12% year-on-year.
“There has been a substantial acceleration in digital transformation across the globe, and you can see it in our results,” Dell chief operating officer Jeff Clarke said in a statement.
Is there any upside in Dell’s share price? Analysts on Yahoo Finance have pinned an average price target of $114.86 on the stock, which would represent a 16.7% upside on Tuesday’s close.
Hewlett Packard’s share price
Second spot in the IDC list went to Hewlett Packard, with the computing mainstay’s cloud infrastructure revenue coming in at $1.6bn in the first quarter, giving it a 11.2% market share.
Hewlett Packard’s share price has gained over 21% since the start of the year. Like Dell, the stock has seen a steep drop since mid-June, going from $15.89 on 11 June to close Tuesday at $14.35. This comes despite the company posting its first double-digit quarterly sales growth since splitting with HP inc in 2015. Revenue came in at $6.7bn for the quarter, up 11% year on year, while Non-GAAP profits was $0.46 a share.
Hewlett Packard’s share price carries a $17.16 average price target, which would see a 19.6% upside on Tuesday’s close.
Cisco share price
Down in fifth position is Cisco, with $393m in cloud infrastructure revenue of $393m, giving it a 2.7% market share.
Cisco managed to reverse a string of revenue declines in its latest set of earnings for its fiscal third quarter, seeing earnings come in at $0.83 a share on revenue of $12.8bn.
However, Cisco warned that it expects the current quarter’s earnings to be lower than analyst expectations, causing the share price to tumble post-earnings. Notably, Cisco closed the $730m acquisition of cloud communications outfit IMImobile in the quarter, along with the $4.5bn purchase of Acacia Communications.
In the year to date, Cisco’s share price has gained just under 18.4%. Analysts have pinned an average $56.08 price target on the stock, representing a 6% upside on Tuesday’s close.
The internet infrastructure theme
Like Hewlett Packard and Dell’s share price, investors will have to decide if Cisco’s stock can recover after an underwhelming June. However, as the economy stabilises in the wake of COVID-19 and infrastructure increases, all three stand to benefit.
Trefis’s Internet Infrastructure theme dashboard has seen an 18% gain this year, edging out the S&P 500’s 16% gain in the same time frame (as of 6 July). The theme tracks companies that sell hardware and software that underpins the working of the internet. In the theme’s top five are Nvidia [NVDA], Micron [MU], Cisco and Juniper Networks [JNPR], all of whom have made substantial gains in 2021.
In its strategic notes, Trefis notes that “COVID-19 is accelerating the trend of digitisation, as people spend more time on the internet,” increasing the demand for connectivity and in turn the “infrastructure that power the internet.” In an article for Forbes, Trefis notes that the shift to remote working and the Biden administration’s plan to roll out broadband in the US is likely to benefit companies covered in the theme.
The IDC notes in a statement that the acceleration that was triggered by COVID-19 is likely to continue, with companies that suffered the most revenue loss returning to growth:
“A lasting impact on IT infrastructure will be an increased reliance on cloud platforms for delivering commercial, educational, and social applications, as well as an intensified focus among organizations on business continuity and risk management, helping to drive digital transformation initiatives and increase usage of as-a-service delivery models.”
How quickly these companies re-establish themselves and up their IT spend on cloud infrastructure could be one of the key growth drivers for Dell, Hewlett Packard and Cisco in the second half of 2021.