While the market is swooning over hot tech names in new markets like artificial intelligence (AI), cloud computing, autonomous driving and virtual reality, one less-exciting segment of the tech space is set for major gains, according to a recent story by MarketWatch that highlighted five hardware stocks to buy in 2018. (See also: Chip Stocks on Verge of Big Breakout: Todd Gordon.)
While the big-picture trends make emerging technology markets compelling, MarketWatch's Jeff Reeves highlighted the "rather boring but equally powerful subsector of high-tech hardware," which has had its fare share of outperforming companies in recent years. Within the group, comprised of companies that rely on the sale of chips, semiconductors and related components, he likes Advanced Micro Devices Inc. (AMD), Micron Technology Inc. (MU), Seagate Technology PLC (STX), NVIDIA Corp. (NVDA) and Pure Storage Inc. (PSTG).
"Speaking of stocks that continue to prove naysayers wrong," wrote Reeves, pointing to the Cupertino, California-based data storage company as an example of a stock that "often gets branded as a high-yield value trap not worth the time." Bears include analysts at Goldman Sachs, who recently downgraded shares of the hardware company to sell on cyclical factors favoring more modern hardware and cloud solutions. While Seagate initially dropped on the downbeat report, shares have rebounded, thanks in part to solid earnings results in which top and bottom line numbers beat expectations.
Lesser-known Pure Storage was highlighted by Barron's as a company set to ride the wave of high-growth industries like AI and self-driving cars, given that its job is to improve the hardware that "allows these data-heavy processes to function in an agile way." Reeves highlighted Pure Storage's "crucial relationship" with chip peer NVIDIA to deploy AI in enterprise applications.
Shares of Pure Storage have returned 68.2% YTD after the firm turned a profit in the recent quarter, surprising the Street which was forecasting for a loss. Pure Storage managed to secure record margins and top line growth at 37%. (See also: 2 Chipmakers to Buy on the Dip: Paul Meeks.)