Cloud Computing and Fiber Provider Stocks That Could Lead Technology for Years

By Trey Thoelcke Updated Jan 8, 7:19AM EST · Published Oct 4, 8:30AM EDT

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Think about how much data the average individual tries to access on any given day. To put this into perspective, when people want to look up something on the Internet, they don’t “surf the Web,” they “Google it.” The demand placed on companies for storage and retrieval of data is becoming gigantic.

Last week, the cloud technology team from Cowen & Co. attended 451 Group’s Hosting and Cloud Transformation Summit in Las Vegas. During the two-day event the analysts met with several chief technology officers and financial sponsors, and they attended several panel discussions. In a new research report, they pointed out that mergers and acquisitions in the space could be right around the corner. They also highlighted several names within their coverage universe as solid ways for investors to play “the cloud.”

Akamai Technologies Inc. (NASDAQ: AKAM) has been able to offer scalable benefits associated with offloading services from client infrastructures, allowing clients to have fewer hard assets in place while providing an ongoing revenue stream for Akamai. This translates into more than 125,000 servers operating dedicated, hybrid cloud and true cloud servers to provide IT and, increasingly, security services in a vast array of companies across a widely diversified group of industries. With an impressive client list that grows each quarter, the company is firing on all cylinders. The Thomson/First Call price objective for the stock is $53.50. Akamai closed Thursday at $51.16.

Equinix Inc. (NASDAQ: EQIX) is expected to be one of the companies in the space looking to employ a merger or acquisition strategy in the near future. The company announced last Friday that it has opened its second International Business Exchange (:IBX) in Rio de Janeiro, based on the platform provided by ALOG Data Centers of Brazil. This new Rio de Janeiro data center, popularly known as RJ2, will enable Equinix to meet the growing demand for data center services in the region. The consensus price target for this top stock is $230.50. Equinix closed Thursday down almost 4% at $166.61.

Interxion Holding N.V. (NYSE: INXN) provides data colocation services through its 34 data centers in 11 European countries. In 2012, the company generated approximately 62% of its total revenues from France, Germany, the Netherlands and the United Kingdom, which represents Interxion’s “Big 4” markets. The remaining 38% revenue came from seven other European countries. The company’s data centers act as content and connectivity hubs that facilitate processing, storage, sharing and distribution of data, content and applications. The consensus price target for the stock is $20.78. Interxion closed at $22.52.

Rackspace Hosting Inc. (NYSE: RAX) recently added a huge new customer in Emerson Electric (NYSE: EMR). In January Emerson started using Rackspace to help tune and monitor climate control products for residential and commercial customers. Adoption has gone so well that Rackspace expects Emerson to hike its commitment from 43 servers today to 100 by year’s end. The consensus price target for the stock is posted at $52. The stock closed at $50.60.

The Cowen analysts are also very positive on the fiber provider space as it works hand-in-hand with the top cloud infrastructure providers. In their report, they also listed these top stocks to buy in that space.

Cogent Communications Group Inc. (NASDAQ: CCOI) provides high-speed Internet access, Internet protocol (IP) and communications services, primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in North America, Europe and Japan. The consensus price target for the stock is $35. Investors receive a 1.7% dividend. Cogent closed Thursday at $32.12.

Level 3 Communications Inc. (NYSE: LVLT) is a Fortune 500 company that provides local, national and global communications services to enterprise, government and carrier customers. Level 3’s comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions, IP-based voice and data communications, wide-area Ethernet services, video and content distribution, as well as data center and cloud-based solutions. The consensus price target for the stock is $25.75. Level 3 closed at $27.94.

Lumos Networks Corp. (NASDAQ: LMOS) is a leading provider of fiber-based bandwidth infrastructure and IP services in key mid-Atlantic markets. It announced last month it had launched its cloud-based hosted call center solution, which provides best-in-class automated call distribution, integrated voice response and call reporting to help organizations manage call volumes more effectively and efficiently. The service operates over Lumos’s carrier-grade, premium optical network, which provides high-speed, resilient access to the call-center cloud service. The consensus price target for the stock is $20.50. Investors are paid a reasonable 2.7% dividend. Lumos closed Thursday at $20.77.

While some on Wall Street are calling for a large correction in the cloud computing infrastructure business, spending may be poised to increase. At the beginning of 2013, 63% of chief information officers surveyed said they planned to increase spending on storage and networking. Through the first three quarters of the year, signs of that have been few. It is entirely possible that the fourth quarter and 2014 will see the bulk of the planned expenditures. This can only bode well for these top stocks to buy.

About the Author Trey Thoelcke →

Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.

Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.

Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.

Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.