Global spending on edge computing is expected to grow by a significant double-digit percentage over the next decade, creating new investment opportunities. There are currently three stocks worth buying Verizon Communications (NYSE: VZ), Spotlight networks (NASDAQ: LLNW), and Akamai Technologies (NASDAQ: AKAM).
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Wireless Networks, The Ultimate Edge Investment Game?
Nicholas Rossolillo (Verizon): Over the years the lines between cellular and internet services have been blurring and new 5G networks are well on their way to continue this trend. Verizon, America’s largest wireless operator, recently launched its version of nationwide 5G – behind nationwide deployments at T-Mobile and AT & T. – and expanded its millimeter-wave 5G (billed as a broadband internet competitor) to parts of 55 cities.
What kind of speech is 5G on Edge Computing? While a wireless signal that enables communication and web services is the end product for you and me, Verizon and colleagues have worked hard behind the scenes to build an infrastructure to make ultra-fast wireless signal available. In addition to the cell phone masts, new fiber optic lines must be operated and localized data centers set up for web traffic. And while the 5G race is still in its infancy, Verizon is spending a lot of money to enable the new network edge capabilities – an estimated $ 17.5 billion to $ 18.5 billion this year alone.
The expense of network upgrades is expected to do more than allow lightning-fast video streams to your smartphone. Even in its leading 4G LTE network, Verizon provides power to networked fleet services, industrial plants, smart home devices and city services such as traffic lights and cameras. And as technology improves, 5G backed with edge computing could help develop autonomous vehicles, robotics, and other AI applications.
Granted, Verizon is not a growth stock. But with the growth of edge computing, I still like America’s leading network. Even with heavy spending on improving the ability to move data efficiently, this is a profitable company that has generated over $ 21 billion in free cash flow (revenue minus cash operations and investments) last year. And since stocks only trade for 11x free cash flow after 12 months and pay a dividend yield of 4.3%, I think this is a good place to start building an edge computing investment portfolio.
This CDN expert wants to steal the edge computing spotlight
Anders Bylund (Limelight Networks): This content delivery network (CDN) operator may not be the first name that comes to mind as you explore the edge computing realm, but Limelight Networks is stealing a march from competition in this market.
First, Limelight’s CDN services play an important role in delivering digital media and large downloads in a hurry on a global scale. The company uses hundreds of edge routers to accomplish this task. But that’s not exactly an edge computing situation, and that’s why I didn’t choose Limelight today.
As you can see, the company is investing heavily in equipping its edge routers with local computing power in order to get a foot in the door of the emerging edge computing market. CEO Bob Lento sees an addressable edge computing market that is much larger than the CDN space.
“If you look at the figures that the analysts provide, it is many times larger than the market for CDN. How much of it can be addressed with our customer base remains to be seen, ”said Lento in the request for earnings for the second quarter in July. “No matter how we try to slice it, it always turns out that the market for edge services is bigger than the market for CDN.”
Edge computing is a new addition to the Limelight product portfolio and does not yet make a significant contribution to the company’s bottom line. We’re looking at Limelight’s long-term growth engine hidden beneath a more visible layer of successful CDN operations. The stock doubled in the last year as the company helped several streaming video services spread their wings in times of pandemic lockdowns – a perfect storm that gives Limelight more resources and operating freedom to explore high octane growth ideas like edge computing Project.
Stay with the industry leader in edge computing
Billy Duberstein (Akamai Technologies): To play edge computing, I’m building Akamai Technologies’ largest content delivery network. While upstart rivals Fast gets a lot of hype, Akamai is making three times the profits Fastly will make revenue this year. Akamai is also an emerging leader in cloud security solutions, a rapidly growing segment that becomes increasingly important as more computers get to the edge of distributed networks.
Last quarter, customers trusted Akamai to deliver over 135 terabits per second in 135 countries powered by over 300,000 servers in over 4,000 locations with nearly 1,500 network partners around the world – one step ahead. That magnitude and trust has earned Akamai 220 of the world’s top OTT broadcasters as customers and 24 of the top 25 video game publishers.
Despite its size, Akamai continues to see solid growth and margin expansion. Last quarter, Akamai increased sales 12.7% to $ 795 million, while operating income rose an even more impressive 40.2% to $ 190 million. Akamai particularly benefited from a 19% increase in customer traffic in the media and carriers as people locked onto social media and streaming TV during the pandemic-stricken second quarter. An even faster growing segment for Akamai was cloud security, which grew 27% to $ 259 million. Management said Akamai had defended a major bank and Internet service provider from “two of the biggest attacks ever seen.”
While some believe size could limit ROI, the move to 5G and fast, secure communications due to the pandemic should provide enough tailwind for the entire CDN and cybersecurity industry. In addition, on the conference call with analysts in the second quarter, management announced that it had actually gained a traffic share during the quarter. The CDN market is still quite fragmented, which means that even the biggest player has an opportunity to increase their market share.
Meanwhile, Akamai is trading on 20x 2021 earnings estimates, making it a much better value than Fastly and other potential upstart.
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