TD Synnex Corp. (NYSE:SNX): Buzzing on Hyve

We came across a bullish thesis on TD Synnex Corp. (NYSE:SNX) on ValueInvestorsClub by RugPull1995. In this article, we will summarize the bulls’ thesis on SNX. The company’s shares were trading at $115.50 when this thesis was published, vs. the closing price of $132.84 on Jan 13.

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SNX operates as a distributor and solutions aggregator for the information technology (IT) ecosystem. The company offers personal computing devices and peripherals, mobile phones and accessories, printers, supplies, and endpoint technology software; and data center technologies, such as hybrid cloud, security, storage, networking, servers, technology software, and converged and hyper-converged infrastructure. It also provides systems design and rack integration, build-to-order, and configure-to-order assembly.

SNX is the leading IT distributor in North America and Europe, with a global market share of 16%. While growth in this segment has stalled, Hyve, a business that manufactures servers, storage and networking equipment for hyperscalers, has tremendous potential. 40% of Hyve’s business comes from Meta and there is potential to strike a deal with Oracle in the next year. The cloud capex for Meta and Oracle are projected to be 13% and 32% from 2024 to 2027 and will have a direct bearing on Hyve’s business. With increasing geopolitical tensions in Taiwan, it provides more business opportunities as mega players like Meta, Microsoft and Amazon look to build onshore capabilities. This segment offers a higher margin and a better growth prospect compared to the distribution segment.

The core business is also expected to witness an up-cycle from 2025. The demand for PCs during Covid surged due to work-from-home requirements. The average life of these PCs is 5 years, making 2025 the terminal year that would prompt users to buy new PCs. The fundamental logic can be applied to servers, network equipment and storage as well but with a slightly wider timeline i.e. 2020-2022.

The stock trades at 10x its 2024 EPS and 8x based on its 2025 EPS estimates. Separately valuing Hyve at 10.5x its EBIT multiple and 9x for SNX’s other business yields a fair value of $157, implying a potential 19% upside with low risk.

While we acknowledge the potential of SNX as an investment, our conviction lies in the belief that some 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 SNX 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 was originally published at Insider Monkey.