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2 Stocks to Watch in Data Storage

By Tim Brugger – Jun 14, 2015 at 11:40AM

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Several forces are at work that will bring the storage and utilization of data even further into the mainstream.

The forecasts for burgeoning industries including the cloud and the Internet of Things (IoT) vary, but the common theme is undeniable: We are in the early stages of what are quickly becoming game-changing markets. The two cutting-edge technologies share a common thread: IoT amasses almost unfathomable amounts of data, while the cloud is the primary means of storing it.

Tracking Internet and smartphone usage, emails, and a host of other information gathering "techniques" is commonplace. Now add in billions of IoT data points and the amount of information being gathered is nearly limitless. To get the most from all that data requires housing it in data centers and computing capabilities powerful enough to fully utilize it.

Naturally, as big as the data opportunity represents, there are a host of players. Two low-priced stocks in particular -- Intel (INTC 2.87%) and Cisco (CSCO -0.20%) -- warrant special attention in the fast-growing world of data storage.

What's the big deal?
According to Gartner, by the end of this year the world around us will include nearly 5 billion connected "things" thanks to IoT. That's an impressive figure, but pales in comparison to Gartner's prediction that in five years there will be more than 25 billion IoT-related items. The world will literally be connected, ostensibly to make our lives easier. As it relates to data storage, each of those "things" will collect usage information, which will then be stored in data centers around the globe.

Much of the data storage is expected to be via the cloud -- an already huge market that is becoming bigger by the day. Combined, the cloud is expected to generate over $300 billion in revenue this year, and climb to nearly $400 billion in just three years. Not all of that revenue will be data storage, but it will be a significant portion which translates to big opportunities in data centers.

As per IDC, by next year a whopping 70% of the world's "raw [data] storage capacity" will reside in what it calls "hyperscale datacenters" -- a market that Intel and Cisco each have a laser-like focus on, and both are making major inroads.

Intel's not about PCs anymore
Despite an 8% decline in its Client Computing Group sales to $7.4 billion last quarter due to "lower than expected demand for business desktop PCs," Intel was still able to report total revenue equal to the year-ago Q1. How? An impressive 19% jump in data center revenues to $3.7 billion was enough to offset the PC-related decline, as was its $533 million IoT sales.

With each successive quarter, data center sales make up a larger portion of Intel's total revenues -- a sure sign CEO Brian Krzanich's emphasis on cloud-related revenues are taking hold. And Intel's transition away from PCs to the centers storing all that data couldn't be timelier. IDC expects that in just two years, 60% of the world's information will be stored in cloud data centers. The success Intel is enjoying in one of the fastest growing markets on the planet, combined with its relative value and strong dividend yield, makes it one of the two stocks to watch in data storage.

Cisco's has the data storage bases covered
It may not be reflected in its stock price since announcing earnings on May 13, but Cisco has its data storage-related sales in large part to thank for its 5% jump in revenues. According to out-going CEO John Chambers, Cisco data center revenues jumped 21% last quarter, putting it on pace for a more than $3 billion annual run-rate.

A key component of all data storage providers -- cloud or otherwise -- is security. As data storage facilities become ever-larger and more complex, security becomes an even more important component. Cisco is delivering in this key market as well, announcing a "record number of licenses" and a 14% jump in revenues last quarter.

Cisco also has its toes in the IoT waters, specifically leading the surge in smart cities. With world metropolises including Berlin and Hamburg, Germany, along with Santiago, Chile already counted as customers, Cisco is on the front end of the data storage collection process, too. And like Intel, Cisco boasts a nearly 3% dividend yield to go along with its growth potential, making it a stock to watch in data storage.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, Gartner, and Intel. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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