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Tag: Buy Recommendation

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Networking

Arista Networks: A Strong Buy for Long-Term Growth in Network Infrastructure

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Arista Networks: (ANET) Buy, $$245  One year target $280. 

Invest 5 Years, 16-20% annual return. P/E 34, 3-5 year EPS growth 14-16%. 

Best large-scale network provider for hyperscalers like Meta and Microsoft. Unlike Cisco (CSCO), Arista didn’t focus on selling gear, instead, it partnered with hyperscalers to build their networks and platforms from scratch. This is a unique competitive advantage and very profitable too; Arista boasts the best margins (32% operating profit) and cash flow in the industry. It is a bit expensive with much of the Earnings growth of 44% in 2023 already priced in, with the stock doubling from $120 last year. Still, an excellent long-term play as the pick and shovels play for AI and high-speed data networks; it tends to surprise so the EPS growth could likely be higher.

I’ve owned it since May 2023 and I add on declines, my last purchase was around $231.

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Cybersecurity

Fortinet: A Strong Buy in the Cybersecurity Sector

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Fortinet: (FTNT) Cybersecurity $61-$61.50 BUY, One year target $75. Long Term 20% return 3-4 years. 

Market leader in the growing cybersecurity industry, increasing revenues at 19% and earnings at 22%, which makes it a good bargain at 34x forward earnings and 7x forward sales. Besides, it is GAAP profitable with terrific operating margins, which always carries a premium.

Cybersecurity is a growing industry due to increasing AI advancements and vulnerability to threats, with several tailwinds. Fortinet has already recovered its 25% second-quarter, post-earnings price drop due to lower revenue growth guidance, which was mostly due to indigestion from heady pandemic growth. It should resume high growth after a few quarters.

Categories
Enterprise Software

UiPath: A Strong Buy in Robotic Process Automation

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UiPath (PATH) Buy $23  Industry: Robotic Automation Processes (RPA)

Secular Growth – 5 Years, Target $55 to $60. Annual Gain around 22%

Why UiPath?

Saving customers money: I believe that for AI to succeed, enterprise software businesses will have to come up with genuine economic and money-saving use cases and applications for their business customers by improving productivity.

Unlocking Data: Mark Moerdler, from Bernstein Research, commented on Barron’s AI Roundtable.

“But arguably, the bigger value creation is going to be unlocking the data within enterprises, to leverage that data to drive efficiencies within organizations, make leaps of intuition in coming up with answers, or make decisions faster, or in some cases reach conclusions you couldn’t previously reach because you didn’t have easy access to the data.” 

UiPath is a Robotic Process Automation (RPA) leader, that started improving productivity for its business customers since its inception and the availability of faster chips and new forms of faster, more efficient parallel computing should turbocharge its business.

Fast-growing industry: The RPA industry is in its early stages and has a long runway of fast growth, especially with AI hardware support. The RPA market is expected to grow at an astounding 33% to $27.5Bn, with cognitive or intelligent computing being one of its key drivers.

UiPath generates enough context to create AI solutions

UiPath’s co-founder had this to say on the earnings call

  • “To be effective, Generative AI needs context, which our software robots can deliver by gathering information from across the enterprise – in data, documents, CRM, ERP, and beyond. It also needs our platform to take action and operationalize the promise of AI today with an integrated set of capabilities that combines our Specialized AI with Generative AI. 
  • Yeah, I would like to add that more customers are realizing that automation is a great means to get more value from Generative AI.”

Strong margins and growth – GAAP margin of 83%,  revenue growth 21% for the next three years, Adjusted operating profit margin at 15%.

Categories
Enterprise Software

Confluent: A Strategic Buy in Data Streaming

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Confluent (CFLT) Buy $22.25 Industry: Data Streaming

Secular Growth – 3 years, Target $43-45. Annual Gain 24%

Open-source Apache Kafka is ubiquitously used for data streaming. Confluent’s founders originally built Kafka and its wheelhouse is scalable data streaming and infrastructure management. The demand for real-time, low-latency data streams from IoT, Ad-Tech, and Autos to name a few, is only going to get greater and Confluent has the best cloud platform to constantly stream it at scale, enhance, maintain, and provide analytics for it. 

What makes Confluent stand out?

Best in Class Product: Confluent does have large competitors; Amazon’s (AMZN) AWS, Microsoft’s (MSFT) Azure, and Alphabet’s (GOOG) Google Cloud have their own managed data streaming products. However, none have the focus, scale, rich features, implementation, integration, support, and cost savings that Confluent does.  A Comparison of the products revealed 26 integrations for Confluent Versus 9 and 10 for the rest, much wider deployment, and stronger support and training.

Symbiotic Relationship: Besides, Confluent, having an agnostic platform, has partnerships with the CSPs (Cloud Service Providers) to fill in their data streaming product needs or bring them customers for storage and processing.  So, it’s a symbiotic relationship and helps both the CSP and Confluent. 

  • Integration: Confluent’s  Data Streaming Platform has several integrated components that will lead to greater engagement and monetization. Given the massive $60Bn Total Addressable Market, and the speed at which data streaming is moving, a comprehensive best-in-class platform at scale is a necessity, and building it gives them a big competitive advantage.

Several Monetization Streams: With Kafka as the foundation, the DSP does a lot more than just stream data, it uses 5 integrated processes of streaming, connecting, governing, processing, and sharing. All these components, including the non-Kafka ones, can be monetized and Confluent has started Freemium licensing/subscriptions to increase engagement and revenue. Using Apache Flink, it’s also increasing engagement and monetization for stream processing, governance, and sharing from customers like Netflix (NFLX) and Instacart (CART). The stream-sharing offering would be very valuable to the finance, insurance, and travel insurance industries, which need to share data with providers and customers.

Confluent had a slower-than-expected 3rd q-2023 revenue growth and in a day sank from $28 to $17, so it is volatile. Now, at $22, it’s a lot cheaper at 8.5x sales, and with 26% revenue growth on the anvil is reasonable for a startup, growth stock that started only in 2014 and IPO’d in 2021. While still making heavy losses, there has been significant improvement in margins and management has committed to continue doing so.