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Unlike the prevailing market sentiment, we don’t think that public cloud adoption is going to kill the demand for networking vendors. In fact, we believe the shift to the public cloud is oversimplified and expect networking firms to pivot their strategic wares to use the cloud as a sturdy growth catalyst. In our view, the hybrid cloud, where enterprises will combine on-premises and cloud infrastructure for workloads, will be the norm.

Indeed, networking technology may be undergoing its most radical change since the advent of the Internet. Data is proliferating at an incredible rate, with increased connectivity requirements and distributed networking ecosystems. The solutions enabling faster, higher-quality transmission of services to users and devices anywhere at any time are in the early stages of disruption. From the data center to wireless connections to branch and edge locations, there is substantial opportunity outside, and within, the public cloud data center for networking vendors.

VMware is our top pick in the industry, as we suspect the market is underestimating the virtualization king’s ability to turn cloud and containers into growth engines while expanding to adjacent markets like security with solid growth trajectories. We think shares are worth $202.

We think Cisco is a high-quality name for investors looking for shareholder returns, with at least 50% of free cash flow slotted to return to investors. The company is dominant across various networking subsegments, and we expect emerging growth prospects to sustain Cisco against the headwinds from legacy product lulls and the overarching cloud threat. We think shares are worth $48.

Lastly, we think F5 Networks is a great turnaround story that we expect to continue gaining momentum. The shift to software is an ongoing trend in networking, and as this enterprise-focused firm pivots toward software and application security and bridges the divide between developer and infrastructure teams, we expect it to accelerate its prospects via the cloud. We think shares are worth $185.

Senior analyst Mark Cash and director Brian Colello provided the research behind this segment.

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