After experiencing a big sell-off over the past couple of months, tech stocks have been rebounding with renewed investor interest amid the resurgence of COVID-19 cases around the world. But, irrespective of any any short-term boost the industry gets from fears of further waves of coronavirus infections, the demand for computer hardware should continue to increase because advanced computing systems are needed to utilize disruptive, new technologies, such as cloud computing, artificial intelligence (AI), and Internet of Things (IoT).

According to a report by Research and Markets, the global communications hardware market is expected to grow to $666.53 billion in 2021 from $625.11 billion in 2020.

Furthermore, the demand for electronics such as personal computers (PCs), smartphones and smart speakers is expected to increase in the coming months because rapid 5G deployment will require devices compatible with the new networking standard. So, it is wise, we think, to bet now on fundamentally-sound hardware stocksSuper Micro Computer, Inc. (SMCI) and Daktronics, Inc. (DAKT).

Click here to checkout our 5G Industry Report for 2021

Super Micro Computer, Inc. (SMCI)

SMCI develops and manufactures high-performance and high-efficiency server and storage solutions based on modular and open architecture. With more than 20 years of hardware design experience, the company provides end-to-end green computing solutions to the cloud computing, data center, enterprise information technology (IT), and Internet of Things (IoT)/embedded markets, among other markets. Its products include server, storage and networking devices.

SMCI’s net sales declined 4.7% year-over-year to $830.31 million for its fiscal year 2021 second quarter, ended December 31, 2020. However, this represents 8.9% sequential revenue growth driven by increased sales to its international customers. The company’s net income has increased by 16.7% year-over-year to $27.67 million. Also, its non-GAAP EPS increased by 10.5% year-over-year to $0.63.

For the quarter ended March 31, 2021, analysts expect SMCI’s revenue to increase 6.3% year-over-year to $820.82 million. The company’s EPS is expected to increase 17.6% year-over-year for the quarter ending June 30, 2021 to $0.80. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters.

On April 6,  SMCI introduced the industry’s most complete server line-up, incorporating the latest 3^rd Gen Intel Xeon Scalable processors that deliver leading performance and reduced TCO and Total Cost to the Environment (TCE). Last month, SMCI announced the availability of the most complete server lineup that supports the AMD EPYC 7003 Series Processors. The stock has gained 84.7% over the past year to close Friday’s trading session at $39.68.

It’s no surprise that SMCI has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Sentiment, and a B grade for Value. Click here to see SMCI’s rating for Growth, Stability, Quality, and Momentum as well.

SMCI is ranked #14 of 55 stocks in the B-rated Technology-Communication/Networking industry.

Daktronics, Inc. (DAKT)

DAKT is a leading manufacturer of electronic scoreboards, programmable display systems and large-screen video displays. Its products include video display systems, scoring and timing controllers, and indoor and outdoor LED video displays, among others. It  also offers various services, such as out-of-home advertising displays. DAKT operates mainly through five segments—Commercial, Live Events, High School Park and Recreation, Transportation, and International.

The company’s net sales for its  fiscal year 2021 third quarter (ended January 30, 2021) came in at $94.14 million compared to $127.66 million in the prior-year period. However, the sales represented  diminished  market activity due to the COVID-19 pandemic. Its gross profit as a percentage of net sales was 25.4% in the third quarter of fiscal 2021 compared to 19.2% in the third quarter of fiscal 2020. Its  operating expenses also decreased 28.1% year-over-year to $24.18 million. This can be attributed primarily to its  reduction  in overall operating expense.

Analysts expect DAKT’s EPS to come in at $0.01 for the quarter ending April 30, 2021, which represents a 150% increase year-over-year. It also surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 10% in fiscal 2022.

Last week, the company partnered with College of the Holy Cross to this spring design, manufacture and install a new LED video board for the Crusaders’ football stadium, Fitton Field, in Worcester, Massachusetts. DAKT along with DGI Communications designed, manufactured and installed two new LED video walls for PTC Inc. (PTC) at their corporate headquarters in Boston, Massachusetts in March. The stock has gained 50.8% over the past six months and closed Friday’s trading session at $6.38.

DAKT’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value, and a B grade for Sentiment and Quality. Click here to see the additional POWR Ratings for DAKT (Stability, Growth, and Momentum).

DAKT is ranked #4 in the same Industry.

SMCI shares were trading at $39.54 per share on Monday afternoon, down $0.14 (-0.35%). Year-to-date, SMCI has gained 24.89%, versus a 10.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...

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