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Networking Vendors Aren't Going Away

We think the cloud holds substantial--and underestimated--opportunity for some of these companies.

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Networking technology may be undergoing its most radical change since the advent of the Internet, thanks to the cloud. Data is proliferating at an incredible rate, with increased connectivity requirements and distributed networking ecosystems. The solutions enabling faster, higher-quality transmission of services to users and devices anywhere, at any time, are in the early stages of disruption. From the data center to wireless connections to branch and edge locations, there is substantial opportunity for networking vendors outside, and within, the public cloud.

We take an alternative view to the prevailing market sentiment that public cloud adoption is going to kill the demand for networking vendors. The public cloud does mean less on-premises spending on networking, but we don’t think it will make key vendors obsolete, especially those with economic moats. In our view, the hybrid cloud--in which enterprises combine on-premises and cloud infrastructure for workloads--will be the norm. Investors have been provided with an overlooked opportunity in solutions that facilitate the transport of data, like switching, software-defined networking, and wireless. We believe the shift to the public cloud is oversimplified, and we expect networking companies to pivot their strategic wares to use the cloud as a sturdy growth catalyst. We expect widespread digital transformation efforts to continue, which will drive the $45 billion networking market to expand at a 4% five-year compound annual growth rate.

Mark Cash does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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