Exploring the Edge Computing Market: Top Stocks for Investment

Discussing the top 10 edge computing stocks worth investing in is the focus of this article. If you’re looking to skip the detailed market analysis, you can jump straight to 5 Best Edge Computing Stocks To Buy. 

Explanation of Edge Computing 

Edge computing is centered on bringing computing power nearer to data generation points, rather than depending solely on centralized cloud systems. To simplify, edge computing involves moving storage and computing abilities closer to data sources, as opposed to relying on a central data center. Instead of sending raw data for analysis to a central facility, processing occurs where the data originates, with only relevant results being transmitted back to the central data hub – such as live business insights or forecasts for equipment maintenance. Everyday devices like smartwatches, phones, and smart speakers already implement edge computing by directly collecting and processing data, seamlessly integrating with our daily routines.

Contrary to popular belief, edge computing does not necessitate a distinct “edge network.” It can function on a single device or router. If a separate network is utilized, high-speed wireless connectivity like 5G is crucial for efficient operation. This enables exciting applications such as autonomous drones, remote surgeries, and smart city initiatives. The edge network becomes essential when local computing is costly or complex, but rapid responses are crucial, and cloud connectivity is too distant. Edge networks empower local processing, facilitating devices at the edge (such as sensors, cameras, or IoT devices) to analyze data and make decisions locally without continual data transmission to a centralized cloud.

The focus of Intelligent Edge is to enhance processing speed, reliability, and efficiency, leading to rapid decision-making while lessening reliance on centralized cloud systems prone to issues like latency and bandwidth constraints. Nonetheless, implementing and managing edge computing architectures pose challenges due to technological intricacies, overflowing data volumes, and interoperability hurdles. As indicated by Gartner, at least 50% of edge computing deployments are anticipated to adopt machine learning by 2026. AI algorithms are tailor-made for the data-intensive environments of edge computing, facilitating swift and precise analyses of extensive data sets. Integration of AI empowers edge devices to independently process and respond to collected data without constant communication with a central server, streamlining decision-making and enhancing operational efficiency – crucial for real-time applications like inventory management or equipment calibration.

Current Landscape and Trends in Edge Computing Market

The global edge computing market, as per Expert Market Research, is poised to grow significantly from $15.54 billion in 2023 to $147.38 billion by 2032, marking a 28.4% compound annual growth rate (CAGR) for the period spanning 2024-2032. This growth is fueled by the emergence of autonomous vehicles, connected car networks, and the demand for lightweight frameworks and applications enhancing efficiency in edge computing, ushering in several market opportunities.PwC projects a nearly threefold increase in the global edge data center market, expected to hit $13.5 billion in 2024 from $4 billion in 2017. This upsurge is driven by the potential of localized data centers to alleviate latency, address intermittent connections, and enable data processing and storage at close distances to end-users. Edge data centers are gaining traction due to several key trends. The advent of 5G plays a pivotal role, with these smaller decentralized centers supporting high-density 5G applications at a low cost and latency, particularly in smart city scenarios. Likewise, the proliferation of IoT devices necessitates swift data analysis at the edge to handle the burgeoning data influx from residential and industrial sensors. Furthermore, the adoption of software-defined networking and virtualization technologies allows software to replace expensive hardware in data centers. Lastly, cost-effective edge data centers cater to the demand for video streaming and AR/VR, minimizing latency and offering superior performance for users.

Further Reading: Best 15 Edge Computing Companies Globally

Recent Developments in Edge Computing Sector

On January 5, 2024, International Business Machines Corporation (NYSE:IBM) revealed a collaboration with American Tower Corporation (NYSE:AMT), a global digital infrastructure provider, aiming to expedite the deployment of a hybrid, multi-cloud computing platform at the edge. This partnership seeks to broaden American Tower’s Access Edge Data Center ecosystem by integrating IBM’s Hybrid Cloud capabilities and Red Hat OpenShift. This endeavor intends to assist clients in addressing evolving customer needs and expectations in digital transformation, harnessing technologies like IoT, 5G, AI, and network automation. IBM aims to furnish American Tower with a hybrid cloud platform, enabling the establishment of an edge cloud at American Tower’s distributed real estate sites.

Likewise, on February 5, Ernst & Young announced the inauguration of the EY Edge Technologies Lab, dedicated to advancing edge ecosystem technologies in digital transformation. This initiative concentrates on creating real-time, industry-specific use cases and prototypes for edge-centric solutions, seamlessly integrating technology into business operations. Leveraging EY.ai, a platform amalgamating business acumen with AI, the Lab showcases the benefits of embedding AI at the edge to enhance speed, performance, security, reliability, and resilience for businesses. The Lab collaborates with Dell NativeEdge and partners with Microsoft, PTC, GE Digital, Snowflake, among others, to streamline business operations and leverage edge technology effectively.

Prime investment opportunities in the edge computing market include Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and NVIDIA Corporation (NASDAQ:NVDA).

Investment Approach 

To compile a list of top edge computing market leaders, we analyzed data from Insider Monkey’s database of 933 hedge funds in the fourth quarter, selecting 10 companies operating in the edge computing software and hardware services sector with the most prominent hedge fund backing. These companies are deemed as the prime edge computing market leaders according to hedge funds’ viewpoints. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by over 140 percentage points in the last decade (see detailed information here).

Edge Computing Market Size and Best Stocks To BuyEdge Computing Market Size and Best Stocks To Buy

Edge Computing Market Size and Best Stocks To Buy

An innovative data center equipped with cutting-edge servers and high-tech gear, symbolizing the company’s state-of-the-art digital technology prowess.

Edge Computing Market Size and Best Stocks To Buy

10. Cloudflare, Inc. (NYSE:NET)

Number of Hedge Fund Holders: 44

Sitting in the 10th spot on our roster of edge computing market giants is Cloudflare, Inc. (NYSE:NET), a global provider of cloud services delivering web and application security products, performance optimization solutions, and platform services like the Secure Access Service Edge (SASE) platform called Cloudflare One. Additionally, Cloudflare offers networking services encompassing connectivity, security, and performance.

For Q4 2023, Cloudflare, Inc. (NYSE:NET) reported adjusted earnings per share of 15 cents, exceeding analyst projections of 12 cents. The quarter’s revenue reached $362.5 million, marking a 32% surge year-over-year and surpassing estimates of $353 million. Cloudflare garnered record operating cash flow totaling $85.4 million, equivalent to 24% of total revenue, besides establishing a peak quarterly free cash flow at $50.7 million, representing 14% of total revenue.

Per data from Insider Monkey’s fourth quarter database, 44 hedge funds were bullish on Cloudflare, Inc. (NYSE:NET) vis-a-vis 37 funds in the preceding quarter. The largest stakeholder, existing as per John Overdeck and David Siegel’s Two Sigma Advisors, holds 2 million shares valued at $165.4 million. 

Aside from giants like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and NVIDIA Corporation (NASDAQ:NVDA), Cloudflare, Inc. (NYSE:NET) presents as a significant player in the edge computing landscape.

Baron Fifth Avenue Growth Fund articulated the following about Cloudflare, Inc. (NYSE:NET) in its investor letter for Q4 2023:

“Most of our portfolio companies have seen stabilization and modest improvements in short-term business fundamentals as the year progressed. More importantly in our view, many have been able to drive significant improvement in long-term Key Performance Indicators (KPIs) such as share gains, meaningful expansion of their total addressable market, and improvement in unit economics. These KPIs are significantly more important in driving the intrinsic values of our businesses, which we believe have increased noticeably during 2023. In the meantime, disruptive changes that we expect will benefit many of our businesses have also continued to pick up steam. Some examples include: • Another example is the leading cloud networking and cybersecurity solution provider, Cloudflare, Inc. (NYSE:NET), who described market share gains and customers consolidating from multiple point solutions to Cloudflare’s platform: “And so we’re the one vendor that is able to give people that vendor consolidation, that single pane of glass… that comes through in a lot of customer examples…. People want to buy the entire Cloudflare platform. They want to protect their entire business with that, and that’s driving more interest in both our network security, as well as our Zero Trust products.”

9. International Business Machines Corporation (NYSE:IBM)

Number of Hedge Fund Holders: 50

Ranking 9th on our list of edge computing market giants is International Business Machines Corporation (NYSE:IBM), known for providing integrated solutions and services globally across Software, Consulting, Infrastructure, and Financing segments. IBM concentrates on hybrid cloud and AI platforms, catering consulting services to various industries while offering on-premises and cloud-based infrastructure solutions. International Business Machines Corporation (NYSE:IBM) stands out as a key player in the edge computing market.

On January 30, International Business Machines Corporation (NYSE:IBM) announced a quarterly dividend of $1.66 per share, in line with previous payments. The dividend is scheduled for payout on March 9 to shareholders on record as of February 9.

As reported in Insider Monkey’s fourth quarter database, 50 hedge funds had a positive stance on International Business Machines Corporation (NYSE:IBM) compared to 53 funds in the previous quarter. The primary stakeholder, holding a significant stake according to Ken Griffin’s Citadel Investment Group, boasts 1.45 million shares valued at $238.5 million.

Diamond Hill Long-Short Fund shared the following insights about International Business Machines Corporation (NYSE:IBM) in its investor commentary for Q4 2022:

New positions initiated in Q4 included shorts International Business Machines Corporation (NYSE:IBM), Acushnet Holdings (GOLF), and elf Beauty (ELF). Since diversified information technology company IBM’s 2019 acquisition of Red Hat, the company has aggressively pursued a hybrid cloud strategy. Though IBM and its new management team have made solid progress on this pivot, we believe the company still meaningfully lags the cloud hyperscalers and other cloud-native companies. Management has also laid out aggressive long-term targets for revenue growth and free cash flow, both of which we believe the company will struggle to achieve as it faces intense competition in its hybrid cloud business and structural headwinds in the company’s legacy businesses.

8. Hewlett Packard Enterprise Company (NYSE:HPE)

Number of Hedge Fund Holders: 50

Delivering data solutions globally through segments like Compute, HPC & AI, Storage, Intelligent Edge, Financial Services, and Corporate Investments is Hewlett Packard Enterprise Company (NYSE:HPE). Their offerings span servers, storage products, edge systems, networking solutions, and related services, placing them as the 8th top player in the edge computing market.

Speaking on February 27, Hewlett Packard Enterprise Company (NYSE:HPE) CEO Antonio Neri shared the company’s decision to manufacture some of its servers in the Middle East to bolster supply chain resilience and meet escalating demand. The move isn’t solely propelled by geopolitical considerations but also targets mitigating potential disruptions stemming from natural calamities.

Insider Monkey’s fourth quarter database reveals 50 hedge funds expressing bullish sentiment towards Hewlett Packard Enterprise Company (NYSE:HPE) versus 47 funds in the prior quarter. Leading investor Cliff Asness’ AQR Capital Management holds the largest stake in the enterprise, with 14.6 million shares valued at $248 million.

7. Accenture plc (NYSE:ACN)

Number of Hedge Fund Holders: 58

Securing a spot on our list of edge computing market leaders is Accenture plc (NYSE:ACN), a global professional services company providing a wide array of technology-related services spanning application services, intelligent automation, software engineering, data and analytics, metaverse, sustainability, change management, HR transformation, digital commerce, infrastructure services, and more. Accenture plc (NYSE:ACN) emerges as a key figure in the edge computing market.

On December 19, Accenture plc (NYSE:ACN) released financial results for the first quarter of fiscal 2024 ending November 30, 2023. The company reported a Non-GAAP EPS of $3.27, surpassing market predictions by $0.14, with revenue registering $16.2 billion, in line with Street expectations.

Insider Monkey’s fourth quarter data unveils positive sentiment from 58 hedge funds toward Accenture plc (NYSE:ACN) in contrast to 55 funds in the prior quarter. GuardCap Asset Management stands as the top stakeholder in the company, holding 1.74 million shares worth $610.6 million.

ClearBridge International Growth EAFE Strategy shared the following regarding Accenture plc (NYSE:ACN) in its investor commentary for Q4 2023:

Another welcome change has been the recognition of generative artificial intelligence (AI) opportunities for companies outside the U.S. While our IT holdings trailed their mega cap U.S. counterparts for most of the year, semiconductor equipment makers ASML and Tokyo Electron, which we consider enablers of AI, as well as enterprise software maker SAP and IT consultant Accenture plc (NYSE:ACN), which we see as facilitators of AI adoption in new product lines and/or enhanced business models, rose strongly in the quarter. These companies are rolling out new, AI-enhanced products at higher prices which should positively impact earnings in the near term.

6. Arista Networks, Inc. (NYSE:ANET)

Number of Hedge Fund Holders: 64

Specializing in data-driven networking solutions for data center and cloud networking, Arista Networks, Inc. (NYSE:ANET) offers AI-driven ethernet switching platforms, campus wired and wireless products, and routing systems to a diverse clientele encompassing internet companies, service providers, financial services, government agencies, media, and telecommunications. The company holds the 6th position among the top edge computing market leaders.

On February 12, Arista Networks, Inc. (NYSE:ANET) disclosed Q4 non-GAAP EPS of $2.08, surpassing Wall Street estimates by $0.37. Revenue surged 20.3% year-over-year to $1.54 billion, aligning with market consensus.

Insider Monkey’s fourth quarter database notes positive sentiment from 64 hedge funds toward Arista Networks, Inc. (NYSE:ANET) compared to 59 funds in the preceding quarter. The largest stakeholder, as per Steve Cohen’s Point72 Asset Management, boasts 833,408 shares valued at $196.2 million.

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