The technology industry's growth is fueled by the ubiquitous integration of generative AI, evolving cloud computing, and ongoing innovations. Thus, let's delve into an analysis of the gain potential for Hewlett Packard Enterprise Company (HPE), PC Connection, Inc. (CNXN), and Spirent Communications plc (SPMYY).
Before delving into the fundamentals of the featured stocks, let’s examine the key factors driving the tech industry’s prospects.
The integration of generative Artificial Intelligence (AI) is catalyzing a paradigm shift across industries, fostering heightened collaboration and bespoke digital interactions. Anticipated as a focal point of technological intrigue in 2024, generative AI is poised to redefine the landscape with its transformative capabilities and personalized advancements.
In 2024, Gartner (IT) forecasts significant expansion, as AI is set to contribute 10% to the overall data landscape by 2025. Furthermore, it envisions a substantial shift, with generative AI expected to dominate 70% of design and development processes for new web and mobile applications by 2026.
Cloud infrastructure is also set to play a pivotal role in making AI accessible to the masses. Businesses are projected to surpass the $1 trillion spending mark on cloud computing infrastructure in 2024. The growing imperative drives this surge to adopt new platforms and embrace as-a-service offerings.
Moreover, the surge of technological innovations spanning the Internet of Things (IoT), 5G networks, blockchain, spatial computing, homomorphic encryption, metaverse, 3D printing, additive manufacturing, robotics, and automation is set to propel significant industry expansion, notably broadening its horizons.
Going forward, according to a report by Report Linker, the information technology market is projected to grow at a CAGR of 7.9% and reach $12 trillion by 2027.
In light of these encouraging trends, let’s look at the fundamentals of the three tech stocks.
Hewlett Packard Enterprise Company (HPE)
HPE provides clients with seamless data capture, analysis, and action solutions. Its offerings span leasing, financing, IT consumption, utility programs, and asset management services. The company operates through six segments: Compute; HPC & AI; Storage; Intelligent Edge; Financial Services; and Corporate Investments and Other.
On October 19, HPE outlined its fiscal year 2024 financial outlook, emphasizing the accelerated value growth for shareholders through the expansion of software and services-rich segments. The company’s strategic shift to higher-growth, higher-margin businesses aims to surpass 50% of total segment revenue by fiscal year 2026.
With ongoing investments, HPE anticipates expanding its recurring revenue, increasing margins, and extending its total addressable market by nearly $100 billion over four years to surpass $340 billion, primarily driven by the expanding AI market.
On March 20, the company announced a definitive agreement to acquire OpsRamp, a leading IT operations management (ITOM) company specializing in monitoring, automating, and managing IT infrastructure across hybrid and multi-cloud environments, including major hyperscalers.
The addition of OpsRamp's expertise allows HPE to offer comprehensive solutions for efficient IT operations, reinforcing its competitive edge and catering to the evolving needs of businesses in complex cloud environments.
For the fourth quarter that ended October 31, 2023, HPE’s earnings from operations amounted to $507 million, compared to a loss of $339 million in the prior year’s period. Its free cash flow increased 16.3% year-over-year to $2.32 billion.
Moreover, the company’s net earnings and net earnings per share came in at $642 million and $0.49, compared to a net loss and loss per share of $304 million and $0.12, respectively, in the previous year’s quarter.
Analysts expect HPE’s revenue to increase 3.6% year-over-year to $30.62 billion for the fiscal year ending October 2025. Likewise, the company’s EPS for the next fiscal year is estimated to grow 10.9% from the prior year to $2.14. Also, the company surpassed the consensus EPS estimates in all four trailing quarters, which is impressive.
Shares of HPE have gained 6.1% over the past year to close the last trading session at $16.72.
HPE’s positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
HPE has a B grade for Value and Momentum. It is ranked #3 out of 46 stocks within the Technology - Communication/Networking industry.
In addition to the POWR Ratings I’ve highlighted, you can see HPE’s Growth, Stability, Quality, and Sentiment ratings here.
PC Connection, Inc. (CNXN)
CNXN provides a range of IT products, including computer systems, data center solutions, software, peripherals, and managed and professional services. The company operates through three segments: Business Solutions; Enterprise Solutions; and Public Sector Solutions.
On December 14, CNXN unveiled the Helix Center for Applied AI and Robotics, showcasing the company's commitment to advancing artificial intelligence and automation. The initiative positions CNXN as a hub for industry-leading expertise, resources, and support, empowering organizations to harness the benefits of AI.
On December 13, CNXN announced the renewal of its Microsoft Azure Expert MSP status, emphasizing its commitment to robust technical capabilities and proactive customer support in Azure environments. This distinction would enhance CNXN's credibility, attracting more clients and contributing significantly to the company's growth.
CNXN’s income from operations marginally increased year-over-year to $32.02 million for the third quarter that ended September 30, 2023. Its adjusted EBITDA rose 9.6% from the year-ago value to $39.83 million. In addition, the company’s adjusted net income and adjusted EPS grew 10.4% and 10.2% from the prior year’s period to $25.63 million and $0.97, respectively.
The consensus revenue estimate of $2.92 billion for the fiscal year ending December 2024 reflects a 3.3% year-over-year improvement. Similarly, the consensus EPS estimate of $3.41 for the next fiscal year exhibits a 6.9% rise from the previous year. The stock has surged 47.1% over the past six months to close the last trading session at $67.45.
CNXN’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
CNXN has a B grade for Stability, Quality, and Sentiment. It is ranked #3 out of 76 stocks within the Technology - Services industry.
Click here to access the additional CNXN ratings (Growth, Value, and Momentum).
Spirent Communications plc (SPMYY)
Based in Crawley, the United Kingdom, SPMYY's Lifecycle Service Assurance segment offers testing solutions for 5G mobile core networks and cellular and Wi-Fi devices in both lab and live environments. The Networks & Security segment develops test methodologies, tools, and services for virtualized networks and the cloud.
On December 6, SPMYY partnered with Anritsu, propelling itself to the forefront of automotive innovation. The collaboration targets a paradigm shift in testing for C-V2X and autonomous driving technologies, positioning SPMYY as a key player in the dynamic autonomous driving sector and creating substantial growth prospects.
On October 31, SPMYY partnered with Cadence Design Systems, Inc. (CDNS), gaining access to advanced verification tools. This collaboration accelerates time-to-market for innovations, simplifies Ethernet chipset design, and ensures optimal product performance, enhancing SPMYY's competitiveness in the industry.
For the six months that ended June 30, 2023, SPMYY’s adjusted revenue registered at $223.90 million. Its adjusted profit before tax and adjusted EPS amounted to $14.80 million and $2.10, respectively. Moreover, cash inflow from investing activities came in at $600 thousand, compared to a cash outflow of $3.60 million in the prior year’s period.
For the fiscal year ending December 2024, analysts expect SPMYY’s revenue to marginally increase year-over-year to $500.49 million. The stock has gained 10.8% over the past month, closing the last trading session at $6.15.
SPMYY’s strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
SPMYY has an A grade for Quality and Stability and a B for Value. It has ranked #2 out of 43 stocks within the Technology - Hardware industry.
Click here to access additional SPMYY ratings for Growth, Momentum, and Sentiment.
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HPE shares were trading at $16.61 per share on Monday morning, down $0.11 (-0.66%). Year-to-date, HPE has gained 7.33%, versus a 24.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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