The most important technology trend for 2023? Artifical intelligence. The fast and furious pace of AI announcements coming out of Microsoft, Salesforce, AWS, Google, and Meta Platforms has made that clear.
But with tech companies cutting headcount and seeking to do more with less, digital transformation activities including automation, analytics, hybrid cloud, and cyber security is also seeing a boost. This is something that I alluded to late in 2022.
In short, companies are trying to accelerate growth, secure data and maximize existing tech and software investments. These five technology giants look well-equipped to help their customers achieve those goals:
1. Cisco Systems: Cisco Systems
CSCO,
recently delivered strong quarterly earnings and raised its dividend. While Cisco benefitted to some extent by the easing supply chain concerns and a weaker U.S. dollar, it’s the company’s strong position in datacenter, 5G, security, and hybrid work that catches my attention.
In a conversation with company Chair and CEO Charles Robbins, I had the chance to discuss Cisco’s shift to recurring revenue and its growing software business. Now with over 40% of its revenue recurring, the company’s reputation as a big capex play in IT is beginning to shift to a more exciting annual recurring revenue story, which should eventually capture a higher multiple for the shares if valued correctly. Furthermore, Cisco’s products are part of the plumbing for much of the movement towards with AI — and this is no fad — making Cisco an interesting investment candidate.
2. Oracle: Oracle’s
ORCL,
miss on revenue in its latest earnings report was offset by an earnings beat on the bottom line and, like Cisco, Oracle raised its dividend again.
While Oracle’s business is more than 70% comprised of predictable recurring revenue, it is the strength of its cloud business that should excite investors most. Its growing cloud business is now tracking to $16 billion annually and it grew 45% with its infrastructure as a service business seeing 55% growth in the most recent quarter. This growth significantly outclipped key competitors AWS, Microsoft and Alphabet, which all saw robust growth in their recent reports but that averaged closer to 30%. Additionally, Oracle has an interesting part in the AI story, as it hosts large swaths of proprietary enterprise datasets that will be key to the next wave of generative AI solutions for the enterprise.
3. Broadcom: In a market where cash is king, Broadcom’s
AVGO,
adjusted EBITDA for its most recent quarter of over 64% is a mouthwatering good result for the infrastructure, software and semiconductor company.
With an earnings beat on the top- and bottom lines, and guidance to grow 8% year-over-year, Broadcom seems an attractive bet. While the market for chipmakers has been tough, Broadcom has performed admirably and under the leadership of CEO Hock Tan, the company focuses on running efficiently so periods of macroeconomic uncertainty are less turbulent.
Broadcom’s massive impending bet on VMware
VMW,
has drawn ire from critics who feel Tan’s leadership style will create tension in the VMware ecosystem. I believe Tan’s practice of focusing R&D spending on areas with the highest growth potential will servce VMware’s customer base well. Broadcom is pulling the right levers in this economy and that makes it an investment consideration in all economic environments.
4. Hewlett Packard Enterprise: A little more than three years after CEO Antonio Neri announced the company’s full transition to everything as a service, HPE’s
HPE,
GreenLake business surpassed $1 billion in its annual run rate, and HPE enjoyed its most profitable quarter since 2017.
The company’s order book increased, meaning the strong result wasn’t just backlog but more sustainable growth, including a 25% increase in annual recurring revenue and a 33% year-over-year jump in total infrastructure as a service orders.
In a conversation with Neri after the company announced earnings, the CEO was quick to indicate that the company’s strategy had taken hold, and while a pivot from large-capex IT equipment sales to subscription services wasn’t going to be instantaneous, the pivot led to the quarter’s strength.
5. Adobe: Adobe
ADBE,
surprised the market and beat across the board, while also raising guidance.
Companies need to get the right message to the right prospective customer, and this is a challenge they’re investing in. Adobe is one of the biggest beneficiaries.of companies using technology to increase productivity and drive revenue. While many cloud and software vendors are under pressure, Adobe is seeing growth across its three main business segments: digital media; creative, and digital experience.
In a brief post-earnings conversation with Anil Chakravarthy, president of Adobe’s Digital Experience Business, he alluded to a trendline of cross portfolio sales that is acting as a tailwind for Adobe — essentially strong retention and robust revenue expansion are a catalyst for continued growth.
Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advising or consulting to ServiceNow, IBM, Nvidia, Meta Platforms, Oracle, MongoDB, Cisco, Juniper and other technology companies. Neither he nor his firm holds equity positions in companies cited. Follow him on Twitter @danielnewmanUV.
More: More than 110,000 tech-sector employees have lost their jobs since the start of 2023
Also: Bill Gates says AI is only the second revolutionary tech advancement in his lifetime
