Akamai (AKAM) Surges 42% YTD: Will This Uptrend Continue?
Shares of Akamai Technologies, Inc. AKAM have surged 41.7% year to date, driven by healthy demand trends in the Security and Compute verticals, a flexible business model and solid cash flow. Earnings estimates for the current and next fiscal year have increased 8.2% and 4.7%, respectively, since December 2022. The projections imply robust growth potential. Backed by strong fundamentals, this Zacks Rank #3 (Buy) stock appears primed for further appreciation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Growth Drivers
Headquartered in Cambridge, MA, Akamai is a global provider of content delivery network (CDN) and cloud infrastructure services. The company’s solutions accelerate and enhance the delivery of content over the Internet, enabling faster response to requests for web pages, streaming of video & audio, business applications, etc. Its offerings are intended to mitigate the impact of traffic congestion, bandwidth constraints and capacity limitations on customers.
The increasing adoption of cloud computing technologies will be a major growth driver for Akamai. The company’s cloud optimization solutions help organizations to improve performance, increase availability and enhance the security of applications and key web assets delivered from data centers to the end user.
The company expanded its cloud computing production through the introduction of Akamai Connected Cloud and various cloud computing services. The Akamai Connected Cloud is a massively scaled edge network that provides improved security and greater scalability, which will aid businesses in enhancing their IT infrastructure.
Cybersecurity is an area that holds a lot of promise for Akamai. With the rapid adoption of cloud computing, security has become a major concern for enterprises. Hackers are using new and sophisticated techniques to take advantage of the security loopholes of the cloud. The company’s security offerings are also poised to gain from higher demand for data computing at the edge, triggered by the rapid deployment of 5G and IoT device proliferation.
The market for API (application programming interface) security is expected to witness substantial growth in the coming years. Akamai is undertaking various initiatives to seize the opportunity. It is putting a strong emphasis on the advancement of its AI-powered API security solution. It effectively analyzes APIs, detects vulnerabilities and minimizes risks. With the growing use of APIs, the demand for such solutions is expected to rise among enterprises. Backed by positive momentum in all verticals Akamai raised its revenue guidance for 2023 to $3,765-$3,795 million from $3,740-$3,785 million estimated previously. Non-GAAP earnings are projected in the band of $5.87-$5.95 per share, up from $5.69-$5.84 per share.
It has a long-term earnings growth expectation of 9.72% and delivered an earnings surprise of 6.89%, on average, in the trailing four quarters. AKAM has an average brokerage recommendation (ABR) of 2.17 on a scale of 1 to 5 (Strong Buy to Strong Sell). ABR is the calculated average of actual recommendations made by brokerage firms and portends the future potential of the stock.
Key Picks
Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build cloud architecture and enhance their cloud experience. Arista delivered a trailing four-quarter average earnings surprise of 12%.
ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is gaining market traction in 200- and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
NVIDIA Corporation NVDA, currently carrying a Zacks Rank #2, delivered a trailing four-quarter average earnings surprise of 18.99%. In the last reported quarter, it delivered an earnings surprise of 19.64%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.
United States Cellular Corporation USM, sporting a Zacks Rank #1, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services and a high-quality network to increase the competitiveness of local businesses and improve the efficiency of government operations.
U.S. Cellular has undertaken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.
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