Our indicative Theme of Internet Infrastructure Stocks – which includes a diverse set of companies that sell hardware and software that underpins the Internet and data centers – has gained about 32% year-to-date, significantly outperforming the S&P 500 which is up by about 15% year-to-date. (as of 12/7/2020). We see these stocks as a key play on the increasing digitization of the economy through and post Covid-19. Below is a bit more about how these stocks have fared over the last month.
While Nvidia (NASDAQ: NVDA) remains the biggest winner in our theme, up 131% year-to-date, its performance has been mixed over the last month or so as news related to the Covid-19 vaccines saw investors shift focus to lower growth and value stocks. Micron Technology (NASDAQ: MU) stock, on the other hand, has rallied by 30% over the last month as demand for its DRAM chips is expected to rise significantly next year particularly from cloud data centers, smartphones, and gaming consoles. Although Intel (NASDAQ:INTC) has been the worst performer in the theme year-to-date due to delays in its next-gen process technology and mounting competition from AMD and Apple’s well-reviewed proprietary chip, it has done reasonably well over the past month, rising by about 10%. Cisco (NASDAQ:CSCO) stock has also lagged this year, down by about -7% year-to-date. However, the stock rallied by about 16% over the last month, driven partly by stronger than expected Q1 FY’21 results, with the company continuing to transition to a more software-centric model.
[Updated 10/28/2020] Nvidia, Intel, Lumentum: Is It Time To Buy Internet Infrastructure Stocks?
Our indicative Theme of Internet Infrastructure Stocks which includes a diverse set of companies that sell semiconductor products, networking equipment, and related products that underpin the Internet – has gained about 19% year-to-date, significantly outperforming the S&P 500 which is up by about 5% year-to-date. (as of 10/28/2020). These stocks should benefit from the growing requirement for connectivity and computing power, as the Covid-19 pandemic accelerates the shift online. While Nvidia (NASDAQ: NVDA) remains the strongest performer, up 130% year-to-date, Intel (NASDAQ: INTC) and Cisco (NASDAQ: CSCO) have underperformed significantly, and are down by almost 20%.
Nvidia (NVDA) is a semiconductor company best known for its graphic processing units (GPUs) that are increasingly used in servers for machine learning and artificial intelligence. In September, the company said that it would acquire U.K based chip designer ARM which specializes in power-efficient central processing units (CPU). The stock is up 131% year-to-date.
Lumentum Holdings Inc. (LITE) manufactures optical networking products such as tunable transponders, transceivers, and transmitter modules, lasers, receivers, and modulators. The company also provides components such as 3D sensors that are used on mobile phones, including the iPhone. The stock is up 6% year-to-date.
Micron Technology (MU) is a memory manufacturer that sells DRAM and NAND memory. Although the stock is down -1.7% year-to-date, due to some weakness in memory prices, it’s possible that pricing for DRAM could pick up in the coming quarters, driven by the launch of new video game consoles and higher demand from the server space.
Cisco (CSCO) is a networking major that sells networking software, and products such as switches and routers. While the stock has underperformed, declining by about -19% year-to-date, it could pick up as data centers start upgrading to the next generation 400G network technology, which improves data capacity significantly.
Intel (INTC) one of the largest producers of CPUs for servers and PCs, has seen its stock drop by about -19% this year, due to delays with its next-generation 7-nm chips and strong competition from rivals such as AMD – which has been broadening its portfolio of CPUs and GPUs targeted at data centers, and Nvidia, which could play a larger role in the CPU space via its ARM deal. (related: It May Take Some Time For The Market To Recognize That Intel Is Undervalued)
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