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3 Top Tech Stocks to Buy for 2021 Amid a Global Hardware Shortage

3 Top Tech Stocks to Buy for 2021 Amid a Global Hardware Shortage

Posted On February 25, 2021 2:29 pm
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Fourth-quarter 2020 earnings are rolling in, and though the pandemic rages on, some companies are reporting stellar finishes to an otherwise forgettable year. Tech stocks — the leaders of the digital economy that’s emerging from the COVID-19 pandemic — are the standouts here, and tech hardware, in particular, could be set for a banner year in 2021 as surging demand around the globe leads to supply shortfalls.

Three top names that had especially good fourth-quarter 2020 report cards — and look like great buys for 2021 — are Arista Networks (NYSE:ANET)Applied Materials (NASDAQ:AMAT), and Universal Display (NASDAQ:OLED).

1. Arista Networks: A coming data center upgrade cycle

As management anticipated a few months ago, Arista Networks returned to year-over-year growth mode in grand fashion at the end of 2020. Fourth-quarter revenue and adjusted earnings per share increased 17% and 9%, respectively, from a year ago as the company started to lap results from the data center construction slowdown that started in 2019.

Full-year revenue and adjusted earnings per share finished down 4% and 7% from 2019, respectively, but the year’s positive final quarter bodes well for this data center parts and software management leader. In fact, management said Q1 2021 sales should rally 22% from a year ago at the midpoint of guidance. And CEO Jayshree Ullal reiterated that the company has a multi-year run of expansion ahead based on Arista’s open architecture hardware and cloud-based management tools.

A new data center upgrade cycle is getting underway, and Arista is poised to benefit in a big way. Additionally, many organizations are in dire need of IT infrastructure upgrades, and Arista has applied its portfolio of data center equipment and software to this arena as well. Called its “Cognitive Campus” portfolio, this is still a young business segment for Arista, but it picked up significant traction in its first year of existence. Paired with subscription software for cloud monitoring and security, led by the acquisitions of Awake Security and Big Switch last year, Arista has all the necessary tools to sustain its newfound growth trajectory.

As Arista laps depressed financials from 2020, a big recovery should be in store in the year ahead. The stock trades for 31 times trailing 12-month free cash flow, a reasonable price tag in my opinion given the expected recovery in business and the multi-year growth cycle that could lie ahead as organizations scramble to update their operations for the cloud era. Now a one-stop-shop of sorts solving problems from networking infrastructure to ongoing management, Arista looks like a top buy for 2021.

2. Applied Materials: Machines building more machines

Data centers supporting cloud computing aren’t the only upgrade cycle that’s underway. Semiconductors are also in high demand these days as high-end computing and data storage become must-haves for a myriad of new devices — from laptops and PCs to phones with new 5G network capability to cars with complex safety and electric drivetrain technology. And applied Materials, which sells manufacturing equipment for the chipmakers, has long been a broad-based play on the semiconductor industry.

Applied started to post strong results last year with a new uptick in global chip demand, and its momentum is carrying over into the new year. The company’s fiscal Q1 2021 (corresponding to the three months ended Jan. 31, 2021) revenue hit a new all-time record high of $5.16 billion, up 24% from a year ago. Adjusted earnings per share rose even more sharply by 42%. The outlook for Q2 (the quarter ending in April 2021) is even more dramatic: Revenue is expected to increase 36%, and adjusted earnings per share by 69%.

Digital memory chip fabrication (and engineering services and equipment supporting those operations) are…

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