Thanks to the explosive proliferation of smartphones and other mobile devices, as well as the rapid growth of cloud-based computing and the Internet of Things (IoT), the volume of digital information our society amasses every day has reached almost unimaginable scope. While all that data -- referred to, in the aggregate, as big data -- offers worlds of upside for those companies that collect, store, and ultimately utilize it, it also presents challenges.
Some of the biggest tech players around are attempting to capitalize on the opportunity big data represents, and are making names for themselves in an industry expected to generate over $210 billion in annual revenue by the end of 2020. A bonus for value investors is that IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), and Intel (NASDAQ:INTC) have all dived into the big data pool, and reward their shareholders with handsome dividends.
Big Blue conquering big data
There are a lot of IBM naysayers, particularly in the wake of its recent earnings release, which showed total revenue declined last quarter by 5%, or 3% after adjusting for currency, to $19.3 billion. Some bears pointed out that even the results from IBM's cognitive computing unit -- home to its artificial intelligence (AI) data-analytics wonder Watson -- disappointed.
Big data analytics falls under the "strategic imperatives" umbrella at IBM, and it accounts for a key component of the company's impressive $15.1 billion annual cloud revenue run-rate. Yes, the cognitive solutions unit's revenue dipped 2.5% to $4.6 billion, but there's more to IBM's big data story. Watson, along with IBM's data security solutions, feeds its cloud growth which continues to soar.
Also, analytic sales as a standalone business increased 4% last quarter, as did data security sales. At a price-to-earnings ratio of 11, value investors in search of income would be hard-pressed to find a less-expensive big data stock to buy today. And at 4.2%, IBM offers one of the highest dividend yields around.
The rise of data centers
Though Intel still relies on selling chips for PCs, its primary focus today is powering the world's growing number of cloud-based data centers. Big data requires computing capabilities unheard of a decade ago, and CEO Brian Krzanich has positioned Intel as the cloud big data leader.
Investors remain a bit standoffish toward Intel stock, as evidenced by its 2% drop in stock price in 2017. However, its weak performance this year has made Intel and its 3% dividend yield a value investor's dream. The chipmaker is coming off back-to-back record revenue quarters of $14.8 billion, and its data center results are once again on track.
Of last quarter's revenue, $6 billion or 40% of Intel's total, was derived from big-data-related sales. Data center revenue climbed 9% to $4.4 billion, the IoT group results jumped 26% to $720 million, and Intel's non-volatile memory division -- which provides hardware for storing and quickly retrieving massive amounts of information -- soared 58% to $874 million.
Microsoft is playing hard-ball
Microsoft's annual cloud run-rate of more than $18.9 billion makes it one of the largest providers on the planet. It's already utilizing big data to bootstrap sales of its suite of software-as-a-service (SaaS) products delivered via the cloud. For example, last quarter, LinkedIn generated $1.1 billion in revenue. Microsoft doesn't share specifics, but it's highly likely some of those LinkedIn-related sales were the result of crunching data to determine which users were most apt to add its SaaS products to their quiver.
Data hosting via Microsoft's Azure platform, which grew 97% last quarter, also drove a 43% increase in commercial Office 365 revenue and a 74% rise in Dynamics CRM sales. Microsoft is becoming a key player in AI that, in conjunction with big data, has nearly unlimited upside.
Microsoft's AI initiatives are already finding their way into PowerPoint, smartphone photo recognition for the visually impaired, and a host of other practical applications. At 2.15%, Microsoft's dividend isn't quite at the IBM or Intel level, but with its big data push in full swing, growth and income investors who put its shares in their portfolios can enjoy the best of both worlds.