It’s no secret that the hardware industry stands to gain a lot from the boom in artificial intelligence. After all, it is the continued growth of the tech hardware industry that makes developments, such as AI, more available to the public.
The global computer hardware market is expected to grow to $914.55 billion by 2028 at a 6.5% CAGR. While this growth comes from a myriad of factors, one of the more notable ones include the expansion of data centers.
All of the cloud service industry leaders, Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT), have announced expansions of data centers for the “storage and processing needs” in hosting AI applications. Here are three hardware stocks for AI that I have identified as excellent picks.
Seagate (STX)
Seagate (NASDAQ:STX) is a data storage company that broadly covers the data storage industry. The company’s focuses include cloud storage systems and services, hard drives and solid state drives. Yahoo! Finance has 27 analysts predicting a 1-year price range on STX to be between $55.00 and $119.00, with a mean of $99.60.
STX did not show strong revenue, but profitability for the company has greatly improved. While revenue suffered a year-on-year loss, net profit margin has increased 106.49% YOY. Evidently, the company’s improvement in profitability is characterized in its 941.13% YOY growth in free cash flow. STX even shows signs of being undervalued with a -11.45 price to book ratio, well below the sector median.
STX is a great buy beyond the financials. Seagate has partnered itself with Ebay to expand its Hard Drive Singularity Program. By selling refurbished and recertified hard drives on Ebay, this program improves Seagate revenue while also promoting sustainability. Seagate has also launched a new hard drive platform: the Mozaic 3+. The 30 terabyte Mosaic 3+ Exos hard drive has the same carbon footprint as a standard 16 terabyte hard drive, maximizing efficiency and furthering sustainability efforts. STX is one of the hardware stocks for AI that investors have to add to their portfolios.
Arista Networks (ANET)
Arista Networks (NYSE:ANET) is a computer networking company that develops and manufactures components for large data centers and high-performance computing. Yahoo! Finance reports 25 analysts predicting a 1-year price range on ANET between $220.00 and $389.00, with a mean of $323.77.
ANET has shown very strong financials for Q1 2024. The company’s profitability has shown great improvement, as earnings per share is up 39.16% YOY. Revenue has shown excellent growth, as seen through a 46.1% YOY net income increase. Management has done an excellent job at increasing revenue while maintaining profitability, with revenue growth being more than double operating expenses growth.
Arista has partnered with NVIDIA (NASDAQ:NVDA) to develop an AI data center with lowered job completion times. Specifically, this network will streamline the use of generative AI applications for clients, saving clients’ time and growing ANET’s revenue by being the first choice in AI data centers. Arista has also introduced Universal Network Observability (UNO) on its operational tasks platform CloudVision. UNO improves troubleshooting abilities for clients through AI-driven analysis and recommendations for network issues. ANET is one of the hardware stocks for AI for me because of its advancements and new services that emphasize improving client experiences.
Pure Storage (PSTG)
Pure Storage (NYSE:PSTG) is a data storage platform that aims to simplify IT and offer data security to its clients. The company has approximately 60% of the Fortune 500 as clients. Yahoo! Finance reports 19 analysts predicting a 1-year price range on ANET between $44.00 and $80.00, with a mean of $70.51.
PSTG boasts strong financials for Q1 2024. The company beat revenue and earnings expectations for Q1 2024, having demonstrated impressive jumps in both revenue and profitability. Revenue grew 17.68% YOY and EPS grew a whopping 300% YOY. This profitability growth is even more impressive when seeing the balance sheet, as management has made sure that asset growth has more than doubled liability growth YOY.
Pure Storage has made an investment in Landing AI, a visual AI solutions company innovating in the space of Large Visual Models. Additionally, Landing AI develops AI tools that analyze visual data. This aligns closely with PSTG’s goal as a data storage platform, and the companies will share common interests. Pure Storage has enhanced its cybersecurity offerings with improved ransomware recover and AI-based anomaly detection. These innovations specifically boost data security. For instance, the anomaly detection analyzing historical data of client’s anomaly patterns to identify threats faster. PSTG is one of the hardware stocks for AI for investors.
On the date of publication, Matthew Rodrigues did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.