3 Stocks to Watch From a Challenging Technology Solutions Industry

Industry Overview - The Zacks Computer – Integrated Systems industry is facing persistent supply-chain bottlenecks and a challenging macroeconomic climate characterized by rising inflation and higher interest rates, leading to significant order backlogs [1][5] - Companies are ramping up investments in data modernization, cybersecurity, remote work enablement, and supply chain modernization to accelerate digital transformation services for enterprise customers [2] Industry Trends - There is a surge in demand for integrated solutions driven by investments in IoT, big data analytics, AI, and blockchain, with opportunities in business analytics, cloud computing, and security solutions [3] - The multi-cloud model is being robustly adopted as enterprises seek better scalability and resource optimization, with emerging economies expected to play a crucial role in driving future growth [4] Challenges - The industry is grappling with supply constraints, softening demand for servers, and delays in customer acceptance, contributing to consistent backlog levels [5] - The ongoing semiconductor chip shortage is posing significant challenges, affecting spending across datacenter systems and leading to operational complexities [6] Industry Performance - The Zacks Computer – Integrated Systems industry ranks 194, placing it in the bottom 23% of over 250 Zacks industries, indicating underperformance in the near term [7][8] - The industry's earnings estimate for 2024 has decreased by 6.1% since March 31, 2023, reflecting a negative earnings outlook [8] Stock Performance - The industry has returned 25.4% over the past year, underperforming the S&P 500 and the broader Computer and Technology sector, which returned 27% and 36.5% respectively [9] - The industry is currently trading at a trailing 12-month P/S ratio of 2.06X, below the S&P 500's 5.56X and the sector's 7.5X [10] Key Companies - International Business Machines (IBM): Experiencing solid net sales growth in the software segment, with a focus on hybrid cloud adoption and a recent acquisition of HashiCorp for $6.4 billion to enhance its hybrid cloud platform [11][12][13] - Hewlett Packard Enterprise (HPE): Benefiting from strong execution in clearing backlogs and a multi-billion-dollar investment plan to expand networking capabilities, with a focus on AI and distributed computing [15][16] - Agilysys: Seeing steady demand for cloud-native products and record high service revenues, with a focus on vertical markets like retail and hospitality [18]