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. The stock is up 131% year-to-date.

Lumentum Holdings Inc. 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.

LITE

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 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 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

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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