We recently published a list of 7 Best Software Infrastructure Stocks To Invest In Now. In this article, we are going to take a look at where Cisco Systems Inc. (NASDAQ:CSCO) stands against the other best software infrastructure stocks to invest in now.
Technology drives nearly every facet of modern businesses, from individual tasks to overall operations, goods, and services. When integrated effectively, it enhances communication, boosts efficiency, and increases productivity. Both tech and non-tech companies rely on software infrastructure and solutions to keep their operations running smoothly. To that end, these companies invest heavily in servers, cloud migration, network monitoring and management, and communication tools—all crucial components of software infrastructure.
One of the largest segments of the software infrastructure market is the cloud infrastructure industry. As businesses increasingly adopt cloud solutions to reduce costs and enhance efficiency, the demand for these services continues to grow. According to Synergy Research Group, global enterprise spending on cloud infrastructure services reached $79 billion in the second quarter, marking a $14.1 billion or 22% increase from the same period in 2023. This represents the third consecutive quarter of substantial growth, with year-over-year increases exceeding 20%.
Specifically, Software-as-a-Service (SaaS) emerged as a rapidly growing segment within the cloud infrastructure industry. Leading companies like Salesforce offer powerful functionalities through subscription-based models delivered over the web. This approach provides lower upfront costs, easy deployment, and ongoing updates, making advanced tools accessible to businesses of all sizes. In the SaaS model, providers grant customers access to application software and databases via the cloud. In 2023, the global SaaS market generated around $197 billion in revenue, representing nearly two-thirds of the total public cloud services market. Although SaaS revenue is projected to keep growing, its share of the overall cloud services market may decrease as cloud platform and infrastructure services expand.
Meanwhile, IT leaders are turning to tech consolidation in response to global economic challenges like inflation, recession, and supply chain disruptions, as well as the need to reduce costs while modernizing IT infrastructure. Gartner predicted that global IT spending would reach around $5.26 trillion in 2024, an increase of 7.5% from 2023. However, rapid expansion in technology investments can lead to tech sprawl, with new tools often lacking compatibility. According to a report from Zylo, organizations have wasted an average of $18 million this year alone due to inefficient SaaS management.
On another front, cybersecurity emerged as a critical component of software infrastructure, with spending surging since the onset of the COVID-19 pandemic. As cloud computing and remote work have become integral to business operations, organizations have encountered new security challenges. According to the Identity Theft Resource Center, the number of data breaches reached an all-time high in 2023, increasing by 71% from the previous record set in 2021 and up 78% from a slight dip in 2022. Given these trends, it’s no surprise that global cybersecurity spending was expected to surpass $200 billion in 2023—an increase of approximately 12% from 2022.
Our Methodology
In this article, we used a stock screener to identify tech companies that provide various forms of software infrastructure and/or are actively engaged in the industry. From that list, we selected the top 7 companies with the highest number of hedge fund investors, according to Insider Monkey’s database of 912 hedge funds as of the end of Q2 2024.
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).
Engineers using the latest Cisco TelePresence technology to collaborate with colleagues around the world.
Cisco Systems Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 61
Cisco Systems Inc. (NASDAQ:CSCO) is a global leader in networking and IT solutions, leveraging AI to optimize network performance, enhance security, and automate IT operations. The company designs, manufactures, and sells networking hardware, software, telecommunications equipment, and other advanced technology products. In addition, the company provides servers, hyperconverged infrastructure, and SaaS-based cloud operations management tools for data centers.
In Q2 2024, the company experienced a 10.27% year-over-year revenue decline. However, Cisco Systems Inc. (NASDAQ:CSCO) is well-positioned for future growth due to strong demand for its networking products, fueled by the rise of cloud computing and the increasing need for cybersecurity. Its transition to a subscription-based model further bolsters its long-term growth prospects. The recent $28 billion acquisition of Splunk is expected to significantly enhance its cybersecurity capabilities and strengthen its position in data security and analytics.
HSBC recently upgraded Cisco Systems Inc. (NASDAQ:CSCO) to a Buy rating, raising its target price from $46 to $58. The upgrade was based on improving order flows, normalized inventories, and Cisco’s strategic focus on high-growth areas. HSBC praised the company’s cautious guidance for FY25, noting that while its recent fourth-quarter results met expectations, the guidance appeared conservative. Despite announcing a 7% workforce reduction this week, HSBC projects Cisco’s non-GAAP EPS to grow at a compound annual growth rate (CAGR) of 11.6% from 2024 to 2027, with double-digit growth anticipated in networking revenue throughout most of FY25.
As of the end of Q2 2024, 61 hedge funds tracked by Insider Monkey held stakes in Cisco Systems Inc. (NASDAQ:CSCO) worth $1.59 billion, up from 58 hedge funds in the previous quarter.
Overall CSCO ranks 5th on our list of best software infrastructure stocks to invest in now. While we acknowledge the potential of CSCO as an investment, we believe that certain AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CSCO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
