3 Networking Stocks to Consider From a Thriving Industry

The Zacks Computer - Networking industry is expected to receive a boost from momentum in cloud computing, network security, big data and cloud storage, as well as next-gen connectivity, amid the rapid adoption of AI technology. Proliferation of AI workloads and hyperscale data centers is fueling investments in high-speed interconnects, optical networking and Ethernet switches. Players in this space are focused on capitalizing on the multi-billion-dollar AI infrastructure opportunity. The rapid deployment of 5G is fueling the proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems, Augmented Reality/Virtual Reality (AR/VR) devices and 5G smartphones, driving demand for robust networking infrastructure. The Wi-Fi 7 upgrade cycle will also act as a catalyst.

Also, the explosion of AI workloads requires a massive upgrade in observability infrastructure. There is a higher need for continuous monitoring of hybrid environments as well as tightening security amid increasing attacks. This will spur demand for innovative networking products, favoring prospects of prominent industry players like NetScout Systems, Inc. (NTCT), Digi International Inc. (DGII) and Lantronix, Inc. (LTRX). Heightened uncertainty over global macroeconomic conditions and volatile supply-chain dynamics, amid ongoing tariff troubles, continues to be concerning for industry participants. Fierce competition is an overhang on pricing power and margin expansion.

Industry Description

The Zacks Computer - Networking industry comprises companies that offer networking and Internet-connected products, including wireless (Wi-Fi and Long-Term Evolution or LTE), Ethernet and powerline, focusing on dependability and ease of use. The products are available in numerous configurations to cater to the changing requirements of consumers in each geographic territory where it operates. Some industry players also provide mission-critical IoT solutions and network security services to help clients build next-generation connected products and implement and manage critical communications infrastructures in demanding environments with enhanced safety levels. Focus on developing IoT sensors, drones and wearables amid increasing demand for cloud computing-based contact tracing applications is driving the industry.

4 Trends Influencing the Industry's Future

Innovation in Networking Technologies Opening Business Avenues: The rapid proliferation of IoT, the increasing popularity of smart connected devices and the growing adoption of cloud computing in network security fuel the demand for an efficient network support infrastructure. The advancements in AI and ML, as well as the high adoption of cloud applications, hold immense potential for companies in the industry. Enterprises are striving to manage fixed and wireless devices in a secure infrastructure. To address the demand, industry firms are driving innovation in networking technologies, including network virtualization and Software-Defined Networking, which favor growth prospects.

Rapid Deployment of 5G to Boost Growth Prospects: The success of the 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support growth in data services. Efforts to develop smart connected homes, hospitals, factories, buildings, cities and self-driving vehicles bode well for industry players. These firms invest heavily in LTE, broadband and fiber to provide additional capacity and improve Internet and wireless networks. These initiatives hold promise.

Wi-Fi 7 Upgrade Cycle to Drive Momentum: Brisk technological advancement, dynamic products, high-speed connectivity, low latency and evolving industry standards define the Computer - Networking industry. The growing clout of the latest Wi-Fi 6E-compliant residential gateways, Wi-Fi routers, set-top boxes and wireless range extenders is a testament to the same. The increasing demand for connecting more devices to the network has been driving demand for Wi-Fi 6E devices. Wi-Fi 6E addresses Wi-Fi spectrum shortage issues by providing continuous channel bandwidth to support a higher number of connected devices without compromising speed. The rollout of Wi-Fi 7 bodes well for the companies in this space.

Macroeconomic Turmoil is Concerning: Global macroeconomic weakness and volatile supply-chain dynamics are persistent concerns. Tariff troubles, especially between the United States and China, remain an overhang on global supply chains. Inflation could affect spending across small and medium-sized businesses globally, and uncertainty in business visibility could dent the industry’s near-term performance.

Zacks Industry Rank Indicates Bright Near-Term Prospects

The Zacks Computer - Networking Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #38, positioning it in the top 16% of more than 243 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Before we present a few stocks you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500 & Sector

The Zacks Computer – Networking industry has outperformed the S&P 500 Composite and the broader Zacks Computer and Technology sector in the past year.

The industry has gained 33.4% over this period compared with the broader sector’s rally of 23.9%. The S&P 500 has appreciated 12.9% over the same time frame.

One-Year Price Performance

Industry's Current Valuation

Based on the forward 12-month price-to-earnings ratio (P/E), which is a common multiple for valuing Computer – Networking stocks, the industry is currently trading at 22.45X compared with the S&P 500’s 22.78X. It is also below the sector’s forward-12-month P/E of 27.8X.

In the past five years, the industry traded as high as 22.45X and as low as 17.97X, with the median being 20.16X, as the charts below show.

Forward 12-Month P/E Ratio

Forward 12-Month P/E Ratio

3 Computer - Networking Stocks to Add to Portfolio

NetScout Systems: This Westford, MA-based company provides performance management, cybersecurity and DDoS protection solutions.

Continued momentum in Cybersecurity and Service Assurance product lines is the biggest catalyst for NetScout. Revenues for the second quarter of fiscal 2026 increased 15% year over year to $219 million, driven by higher demand across enterprise and service provider markets. Revenues also benefited from the pull-forward of certain orders meant for the second half of fiscal 2026.

The Service Assurance product line registered revenue growth of 10% and contributed to 65% of the first half sales. Growth was driven by enterprise spending on digital transformation, observability, AIOps and enhanced network visibility. NTCT’s recent launches, such as the Omnis KlearSight Sensor for Kubernetes, are expanding the company’s presence in cloud-native observability markets. It is designed for dynamic and distributed architectures that are hard to monitor due to their encrypted nature.

Service provider activity benefited from the timing of maintenance renewals. Focus on 5G-related monetization opportunities (fixed wireless access and private 5G) by both domestic and international carriers is another growth driver for this business. Cybersecurity revenues increased nearly 13% year over year in the first half as customers respond to an accelerating and more complex threat landscape. NTCT won a deal with a key U.S. telecommunication company that included Adaptive DDoS and Distributed TMS cybersecurity solutions on a subscription basis.

Looking ahead, revenues for the fiscal year are expected to be in the range of $830 million to $870 million (previous range: $825 million to $865 million). Non-GAAP earnings per share projected to be between $2.35 and $2.45 (previous range: $2.25 to $2.40).

At present, NTCT carries a Zacks Rank #2 (Buy). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

The Zacks Consensus Estimate for fiscal 2026 bottom line is pegged at $2.41 per share, unchanged in the past seven days. Shares have gained 20.7% in the past year.

Price & Consensus: NTCT

The company ended fiscal 2025 with strong fourth quarter revenues of $114 million, up 9% year over year, and achieved its fourth consecutive quarter of double-digit ARR growth. ARR (including Jolt Software acquisition) surged 31% year over year to $152 million. ARR represents 35% of total revenues, underscoring Digi’s shift from transactional sales toward multiyear subscription-based solutions.

DGII delivered $108 million in adjusted EBITDA for fiscal 2025, up 11% year over year, and delivered $105 million in free cash flow while also paying down all remaining Ventus acquisition debt.

DGII expects to deliver double-digit growth across ARR, revenues and adjusted EBITDA. Management reiterated confidence in achieving its long-term targets of $200 million in ARR and $200 million in adjusted EBITDA by fiscal 2028, with strategic acquisitions potentially fast-tracking the timeline.

At present, DGII carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2026 bottom line is pegged at $2.38 per share, improved by 18 cents in the past seven days. Shares have gained 26.2% in the past year.

Price & Consensus: DGII

The company recently reported first-quarter of 2026 results, wherein revenues of $29.8 million improved 3% year over year, excluding Gridspertise. Management highlighted that industry dynamics, including record defense spending, strong regulatory momentum and elevated need for secure networking and connectivity, remain favorable.

LTRX’s unmanned aerial systems segment is becoming a meaningful, accelerating growth engine amid higher demand from various customers. OEM engagements jumped to 17 from 10 in the previous quarter, owing to higher customer adoption and market momentum. The launch of the Edge AI drone solution (both NDAA and TAA-compliant) positions Lantronix to scale with growing defense and commercial demand.

Management noted that momentum in the drone segment could provide upside to initial expectations in fiscal 2026. It also introduced EdgeFabric.ai, which is a visual orchestration platform for Edge AI deployment. It collaborated with Vodafone IoT to launch Kompress.ai. Kompress.ai is a subscription-based SaaS platform for the lucrative industrial air compressor market.

Lantronix’s second-quarter guidance implies nearly 20% year-over-year growth at the mid-point, excluding Gridspertise.

At present, LTRX carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2026 bottom line is pegged at 20 cents per share, unchanged in the past seven days. Shares have gained 59.3% in the past year.

Price & Consensus: LTRX

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research