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Massive Cloud Spending by Microsoft Bullish for 5 Top Optical Stocks

When a tried-and-true old-school technology stock like Microsoft Inc. (NASDAQ: MSFT) is hitting all-time highs, the company must be doing something right. A large part of the company’s recent success has been its strong position in the cloud. Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering.

Azure has become a solid rival to Amazon’s AWS service. Some analysts feel that Microsoft is discounting Azure for large enterprises, so that Azure may be cheaper than AWS for larger users.

A new Stifel research report focuses on the spending by Microsoft to maintain and grow Azure. While the capital expenditures for the recently reported quarter declined year over year, they were up 37% sequentially. The report noted this:

Management highlighted the increase in capital expenditures as resulting from following the company’s strategy of building out capacity (data centers and servers) to meet both near-term and long-term commercial and consumer cloud demand. Looking forward, management called for growth in capital investments to continue meeting growing demand and capacity needs. Fiscal first quarter for 2018 capex was guided to be flat quarter over quarter on an accrual dollar basis. For fiscal year 2018, management anticipates capital investments to increase year-over-year, although spending will remain variable quarter-to-quarter.

Five top stocks are expected to be beneficiaries of the huge spending.

Ciena

This company has had a very up and down 52 weeks and has frequently been the subject of takeover rumors. Ciena Corp. (NASDAQ: CIEN) is a vendor for high-capacity optical transport and Ethernet switching equipment to carriers, enterprises, cable operators and governments. It specializes in transitioning legacy communications networks to converged, next-generation architectures capable of efficiently delivering a broader mix of high bandwidth services.

The company’s Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, Optical Transport Network (OTN) switching and packet switching. Its products comprise the 6500 Packet-Optical Platform, 5430 Reconfigurable Switching System, CoreDirector Multiservice Optical Switches and OTN...


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