We recently compiled a list of the 11 Best Computer Hardware Stocks to Invest in Right Now. In this article, we are going to take a look at where Arista Networks, Inc. (NYSE:ANET) stands against the other computer hardware stocks.
What’s Driving the Computer Hardware Industry?
According to a report by Research and Markets, the international IT hardware market was valued at $130.86 billion in the current year. It is expected to grow at a compound annual growth rate of 7.86% to reach $191.03 billion by 2029. One of the key factors driving the computer hardware industry has been the rise of artificial intelligence in personal computers and notebooks. According to a March 18 report by Canalys, around 48 million AI PCs are expected to be shipped during 2024, representing 18% of the total PC shipments. The report highlights that this is just the beginning of a major market transition, as AI PC shipments are expected to exceed 100 million next year, accounting for more than 40% of all PC shipments.
In a recent statement, Ishan Dutt, Principal Analyst at Canalys emphasized the transformative potential of AI-capable personal computers. He forecasts that the proliferation of AI-accelerating silicon will lead to the shipment of over 150 million AI-capable PCs by the end of 2025. These devices are expected to enhance user experiences significantly through dedicated on-device AI capabilities, which will drive productivity gains and enable personalized device interactions at scale. Additionally, Dutt highlighted that these PCs will offer improved power efficiency, stronger security, and reduced costs associated with executing AI workloads locally rather than relying on cloud services.
Moreover, Kieren Jessop, another analyst at Canalys, added that this shift towards AI-capable PCs is likely to result in a 10% to 15% price premium compared to standard PCs without integrated Neural Processing Units (NPUs). By 2025, it is anticipated that over half of PCs priced at $800 or more will feature AI capabilities, projected to exceed 80% by 2028. This trend is expected to significantly increase the overall market value of PC shipments, rising from $225 billion in 2024 to over $270 billion by 2028.
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These latest AI PCs have actively helped recover global PC shipments, thereby uplifting the overall computer hardware industry. According to a report by IDC published on October 8, global PC shipments dropped 2.4% during Q3 2024, however, this indicated a recovery as the shipments had dropped by around 14% and 16.5% in Q3 of 2023 and 2022, respectively. According to Jitesh Ubrani, research manager at IDC, there is a clear resurgence in demand for PCs among both consumers and commercial buyers. However, this demand is still predominantly focused on entry-level models, spurred by the recovering economy and seasonal back-to-school purchases in North America. The anticipated arrival of AI-enabled PCs, such as Copilot+ models and upcoming offerings from other major hardware companies, is expected to invigorate the premium segment in the near future.
Our Methodology
To compile the list of 11 best computer hardware stocks to invest in right now, we used the Finviz stock screener to get a preliminary list of computer hardware companies sorted by market cap. Next, we researched to check if the companies were pure play. Our criteria to call a company pure play was to check if the majority source of revenue for the company came through its operations in the computer hardware industry. Lastly, we ranked our shortlisted stocks in ascending order of the number of hedge fund holders as of the third quarter of 2024, sourced from Insider Monkey’s database.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician at a sophisticated computer hardware rig, emphasizing the company’s chip-manufacturing capabilities.
Arista Networks, Inc. (NYSE:ANET)
Number of Hedge Fund Holders: 70
Arista Networks, Inc. (NYSE:ANET) specializes in providing advanced networking technologies primarily for large data centers and cloud environments. It develops high-speed networking products that facilitate efficient data transfer and communication within data centers and across cloud services. For instance, their Ethernet switches are essential for connecting various devices and managing data flow. Its product offering is categorized into three main segments, including Core Products, Cognitive Adjacencies, and Network Software and Services.
Management has prioritized developing AI-driven networking solutions while enhancing its Core Products portfolio. Currently, Core Products account for 60% to 65% of the total revenue mix, with the Americas being the largest market contributing more than 81% to its sales. During the third quarter results for fiscal 2024, Arista Networks, Inc. (NYSE:ANET) announced significant corporate and government partnerships. For instance, the company in collaboration with Meta is innovating its Etherlink portfolio to meet the demand for AI-centric networking. It introduced new products including Ethalink 7700, and enhanced its 800-gigabit Ethernet offerings.
Moreover, on the government side Alabama Fiber Network, a consortium of eight electric cooperatives selected Arista Networks, Inc. (NYSE:ANET) as its provider of routing and switching equipment for its robust middle-mile network project. This initiative delivers affordable, high-capacity, and reliable internet access to last-mile providers and large enterprises throughout underserved rural areas across Alabama.
Demand for its networking technologies and software remains robust as during the third quarter the company grew its revenue by 20% year-over-year to $1.81 billion. In addition, its GAAP gross margins remained robust at 64.2%, compared to 62.4% from the prior year. It is one of the best computer hardware stocks to invest in right now.
Madison Mid Cap Fund stated the following regarding Arista Networks, Inc. (NYSE:ANET) in its Q2 2024 investor letter:
“We trimmed our positions in Arista Networks, Inc. (NYSE:ANET) and Carlisle Companies. Both of these companies have witnessed strong multi-year growth in their stock prices, which have resulted in elevated valuations. While we remain confident in the long-term prospects of both of these businesses, we trimmed our holdings to more appropriate position sizes given the risk/reward offered.”
Overall, ANET ranks 2nd on our list of the best computer hardware stock to invest in right now. While we acknowledge the potential of ANET as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ANET but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
