Tech stocks are regaining momentum as businesses worldwide adopt hybrid working structures. Moreover, with robust digitization happening in almost every industry and 5G being deployed widely, tech companies are witnessing surging demand for their products and services. In fact, the robust demand for tech products and solutions and favorable policies for domestic semiconductor chip production have rekindled investors’ enthusiasm for the sector.
Surging investor optimism over the industry’s growth prospects is evident in the iShares U.S. Technology ETF’s (IYW) 7.5% returns over the past month versus the SPDR S&P 500 ETF Trust’s (SPY) 2% gains. In fact, the global tech industry is expected to grow at a 5% CAGR over the next three years.
Given this backdrop, we believe it would be wise to bet on established tech players Microsoft Corporation (MSFT), Cisco Systems, Inc. (CSCO), and Broadcom Inc. (AVGO) because they are continuously innovating and are positioned to continue growing.
Microsoft Corporation (MSFT)
MSFT develops and supports software, services, devices, and solutions worldwide. The company operates through three business segments—productivity and business processes; intelligent cloud; and more personal computing. It sells its products through OEMs, distributors, and resellers, and directly through digital marketplaces, online stores, and retail stores.
On June 2, 2021, MSFT collaborated with Morgan Stanley (MS) to accelerate the firm’s digital transformation and shape the future of innovation in the financial services industry. Combining MS’ financial services engineering expertise with MSFT’s cloud and industry-specific experience, the partnership is intended to develop and co-design secure and compliant application infrastructure with data privacy that will fuel its cloud transformation and enhance client, employee and developer experiences. By addressing increased cyberthreats and other challenges in the financial services industry, MSFT hopes this partnership will create additional collaboration opportunities in the financial services industry.
On May 13, Mars, Incorporated, a manufacturer of confectionery, pet food, and other food products, expanded its long-term relationship with MSFT in a new agreement to accelerate Mars’ digital transformation. Working with Accenture (ACN) as a partner to MSFT, Mars will leverage MSFT’s Microsoft Azure platform to optimize its operational speed and intelligent manufacturing supply chains across Mars’ portfolio and provide business insights that will help Mars accelerate its growth, profitability and customer experience. MSFT’s total revenue came in at $41.71 billion for its fiscal first quarter, ended March 31, 2021, which represents a 19.1% year-over-year rise. The company’s gross profit increased 19.2% year-over-year to $28.66 billion. Its operating income is reported at $17.05 billion, up 31.4% from the prior-year period. While its adjusted net income increased 38% year-over-year to $14.84 billion, its adjusted EPS increased 39.3% year-over-year to $1.95. As of March 31, 2021, the company had $13.70 billion in cash and cash equivalents.
A $1.92 consensus EPS estimate for the current quarter, ending June 30, 2021, represents a 31.5% improvement from the prior-year period. MSFT surpassed the Street’s EPS estimates in each of the trailing four quarters. The $44.29 billion consensus revenue estimate for the current quarter represents a 16.5% rise from the prior-year period. The stock’s EPS is expected to grow at a 17% rate over the next five years.
MSFT has climbed 34.6% over the past year and 29.7% over the past nine months. It closed yesterday’s trading session at $265.51.
MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Stability, Sentiment, and Quality. To see additional POWR Ratings for MSFT’s Growth, Value, and Momentum, click here.
MSFT is ranked #18 of 128 stocks in the Software – Application industry.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide. The company offers enterprise network security, software development, data collaboration, cloud computing, and other related services. It sells its products and services directly, as well as through systems integrators, service providers, other resellers, and distributors.
On June 23, 2021, Vodafone Idea Limited (VIL), India’s leading telecom operator, collaborated with CSCO to design and build a cost-efficient network architecture across India to accelerate digital transformation and enhance the quality of experience for VIL customers. Using CSCO’s Ultra Packet Core will help VIL deploy a host of innovative new software applications and services that will provide enhanced performance and drive greater speed to market with emerging opportunities in 4G & 5G, cloud, and IoT. Also, it will enable VIL’s network to be 5G-ready and deliver innovative use cases across industry verticals spanning healthcare, education and IoT. This month, CSCO introduced a new portfolio of Catalyst industrial routers that will extend the power of the enterprise network to enable reliable connectivity to IoT edge and run connected operations at scale. CSCO’s portfolio offers a broad choice of modules, including 5G and LTE for public or private cellular networks, public safety applications like FirstNet, DSL, Wi-SUN, and upgradeable storage. Owing to the digital transformation and emergence of 5G technology, as industries adopt various connected devices and business apps CSCO’s portfolio is expected to secure expanded market reach in the coming months.
During its fiscal third quarter, ended May 1, 2021, CSCO’s total revenue increased 6.8% year-over-year to $12.80 billion. Its non-GAAP gross profit was $8.45 billion, up 5.7% from the prior-year period. Its non-GAAP income from operations is reported to be $4.30 billion for the quarter, which represents a 2.8% improvement year-over-year. While its non-GAAP net income increased 4.2% year-over-year to $3.51 billion, its EPS increased 5.1% year-over-year to $0.83. The company had $7.36 billion in cash, cash equivalents and restricted cash as of May 1, 2021.
Analysts expect CSCO’s EPS to improve 3.4% year-over-year to $0.83 for the current quarter, ending July 31, 2021. The stock has surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to improve 7.3% year-over-year for the current quarter, to $13.04 billion. Analysts expect the stock’s EPS to grow at 5.9% per annum over the next five years. CSCO has gained 35.5% over the past nine months and closed yesterday’s trading session at $53.26.
CSCO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Quality, and a B grade for Stability. Click here to see the additional ratings for CSCO (Growth, Value, Sentiment, and Momentum).
CSCO is ranked #8 of 55 stocks in the B-rated Technology – Communication/Networking industry.
Broadcom Inc. (AVGO)
AVGO designs, develops and supplies a broad range of analog and digital semiconductor connectivity solutions, including wired infrastructure, wireless communications, enterprise storage and industrial and others. The company’s products are used in data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations.
On June 15, 2021, AVGO announced new, industry-first capabilities for Value Stream Management (VSM) in its ValueOps software portfolio that seamlessly combine business and investment-oriented product management, providing advanced operationally focused Agile planning and management capabilities. This integration of AVGO’s Clarity and Rally software products enables every role within an enterprise to manage, track and analyze unified value streams with a consistent value orientation and methodology. As a recipient of the Leader award in the 2021 Enterprise Agile Planning Tools, AVGO hopes this helps ValueOps to gain expanded market reach in the coming months.
On May 11, AVGO introduced the world’s first 64G Fibre Channel Host Bus Adapter (HBA), named Emulex Gen 7 LPe36000-series HBAs. Reducing database warehousing query time by half, AVGO’s end-to-end 64G SAN technology enabling storage innovation is expected to drive the industry for the next decade.
AVGO’s non-GAAP net revenue for its fiscal second quarter, ended May 2, 2021, came in at $6.61 billion, which represents a 15.1% year-over-year improvement. The company’s non-GAAP gross profit increased 18% year-over-year to $4.95 billion. AVGO’s non-GAAP operating income came in at $3.80 billion for the quarter, up 25.4% from the prior-year period. While its non-GAAP net income increased 28.3% year-over-year to $2.98 billion, its non-GAAP EPS increased 28.8% year-over-year to $6.62. As of March 31, 2021, the company had $9.52 billion in cash and cash equivalents.
Analysts expect AVGO’s EPS to improve 28% year-over-year for the current quarter, ending July 31, 2021, to $6.91. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock’s $6.76 billion consensus revenue estimate for the current quarter represents a 16.1% rise on a year-over-year basis. Analysts expect the stock’s EPS to grow at an 8.5% rate per annum over the next five years.
AVGO has gained 48.1% over the past year and 28.5% over the past nine months. It closed yesterday’s trading session at $464.45.
It’s no surprise that AVGO has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
AVGO has a B grade for Growth, Stability, Quality, and Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see AVGO’s ratings for Momentum and Value here.
AVGO is ranked #2 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in AVGO for a 25% gain. Learn more about the RTR service here.
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MSFT shares were trading at $265.43 per share on Wednesday afternoon, down $0.08 (-0.03%). Year-to-date, MSFT has gained 19.89%, versus a 14.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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