Since the onset of the pandemic, enterprises of all sizes have focused on digital transformation through the adoption of cloud-based solutions. Although digital solutions were already picking up before the pandemic, the pandemic-induced lockdowns and remote lifestyles accelerated the adoption of cloud-based solutions.
Cloud-based solutions are well known for reducing operating costs for enterprises, providing increased speeds, and improving reliability. However, after witnessing solid growth, cloud-based solutions are expected to give way to edge computing. The demand for edge computing is expected to be driven by the growth of IoT and other advanced technologies that require real-time processing and increased reliability.
This is why today I’m going to analyze three prominent edge computing stocks: Microsoft Corporation (MSFT), Akamai Technologies, Inc. (AKAM), and International Business Machines Corporation (IBM). These stocks look well-positioned to capitalize on the industry tailwinds.
Edge Computing: The Future of Computing
Edge computing is done at or closer to the data source, with computers smaller than one’s hand. According to Gartner, edge computing is “a part of a distributed computing topology in which information processing is located close to the edge - where things and people produce or consume that information.”
The term ‘edge’ refers to geographic distribution. Instead of relying on the cloud to do all the work at one of the many data centers, edge computing enables data processing within the network, allowing reduced latency and bandwidth.
The primary goal of edge computing is not to replace the cloud but to provide solutions in areas where cloud computing has shortcomings. Edge computing seeks to save bandwidth and improve security, privacy, and reliability.
Edge computing helps bring computation and data storage closer to the devices where it’s being gathered rather than being dependent on a centralized cloud-based location. This enhances an application's functioning by removing the latency issues involved with the real-time processing of data. The application of edge computing could benefit the oil and gas industry, autonomous vehicles, patient monitoring, management of smart cities, cloud gaming, and traffic management.
The adoption of edge computing applications is expected to grow as enterprises seek to improve their performance by upgrading their security through edge-based threat detection, data minimization, and decentralized infrastructure. The edge computing market is expected to grow at a CAGR of 19% to reach $87.30 billion by 2026.
Prominent Industry Participants
Alphabet Inc. (GOOGL) and Amazon.com, Inc. (AMZN) are two major edge computing stocks. While GOOGL has returned 13.4% over the past year, AMZN gained 3.8% over the past month. GOOGL has a market capitalization of $1.70 trillion, while AMZN has a market cap of $1.57 trillion.
Google Cloud’s managing director Amol Phadke in his blog, said new edge services will help customers “reduce latency, lower processing costs by processing data and compute cycles at the edge, reduce costs and processes associated with data storage, and eliminate the need to transport data from the edge to a central location for real-time computation.”
3 Edge Computing Stocks to Buy Now
Microsoft Corporation (MSFT)
MSFT develops and supports a range of software products, services, devices, and solutions. The company operates in the Productivity and Business Processes, Intelligent Cloud, and Personal Computing segments.
Analysts expect MSFT’s EPS and revenue for fiscal 2022 to increase 15.9% and 18.4% year-over-year to $9.33 and $199.06 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 11.5% to close the last trading session at $285.26.
In terms of trailing-12-month gross profit margin and net income margin, MSFT’s 68.83% and 38.50% are 37.9% and 577% higher than the industry averages of 49.91% and 5.69%, respectively. Also, its trailing-12-month EBITDA margin and levered FCF margin of 49.12% and 25.14% are higher than the industry averages of 13.78% and 10.06%, respectively.
MSFT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Sentiment and a B grade for Stability and Quality. It is ranked #9 out of the 61 stocks in the Software – Business industry. Click here to check MSFT ratings for Growth, Value, and Momentum.
Akamai Technologies, Inc. (AKAM)
AKAM provides solutions for protecting and delivering content and business applications over the internet. The company provides cloud services for delivering, optimizing, and securing content and business applications over the internet. Its products include Kona Site Defender, Bot Manager, Enterprise Application Access, Image & Video Manager, Edge DNS, Enterprise Threat Protector, Identity Cloud, Akamai MFA, Cloud Wrapper, etc.
For fiscal 2023, AKAM’s EPS is expected to increase 11.5% year-over-year to $6.60. Its revenue for the quarter ending March 31, 2022, is expected to increase 9% year-over-year to $903.88 million. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 15.4% to close the last trading session at $118.01.
In terms of trailing-12-month gross profit margin and net income margin, AKAM’s 63.34% and 18.83% are 26.9% and 231.1% higher than the industry averages of 49.91% and 5.69%, respectively. Also, its trailing-12-month EBITDA margin and levered FCF margin of 34.49% and 22.14% are higher than the industry averages of 13.78% and 10.06%, respectively.
AKAM’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. It is ranked #8 in the same industry. To see the other ratings of AKAM for Momentum, Stability, and Sentiment, click here.
International Business Machines Corporation (IBM)
IBM operates in the cloud and cognitive software; global business services; systems; and global financing segments. It also designs advanced semiconductors in partnership with IBM research.
Analysts expect IBM’s EPS and revenue for fiscal 2022 to increase 24% and 5.9% year-over-year to $9.83 and $60.72 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to grow 16.5% per annum over the next five years. Over the past month, the stock has gained 1.9% to close the last trading session at $126.37.
In terms of trailing-12-month gross profit margin and net income margin, IBM’s 54.90% and 10.01% are 10% and 76.1% higher than the industry averages of 49.91% and 5.69%, respectively. Also, its trailing-12-month EBITDA margin of 21.25% is higher than the industry average of 13.78%.
IBM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #19 out of 82 stocks in the Technology – Services industry. Click here to see the other ratings of IBM for Growth, Momentum, Stability, and Sentiment.
MSFT shares were trading at $282.06 per share on Tuesday afternoon, down $3.20 (-1.12%). Year-to-date, MSFT has declined -15.96%, versus a -7.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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