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The Zacks Computer – Integrated Systems industry is still recovering from significant headwinds stemming from persistent supply chain bottlenecks, a challenging macroeconomic climate characterized by rising inflation and higher interest rates, soaring prices for key inputs and delays in customer acceptance of new products and services. These factors have resulted in significant order backlogs across the industry, casting a shadow on its prospects. Nonetheless, International Business Machines IBM, Advanced Micro Devices AMD, Micron Technology MU and IonQ IONQ are reaping the benefits of several favorable industry trends like advancements in data management capabilities, a rapid shift away from traditional siloed systems toward more integrated deployment techniques and heightened demand for modern application development approaches.
Industry Description
The Zacks Computer - Integrated Systems industry comprises companies that deliver advanced information technology solutions spanning computer systems, software platforms, data storage infrastructure and microelectronics. These industry players are ramping up investments in data modernization and analytics, cybersecurity and threat defense, remote work enablement, process automation, contactless service delivery models, enhanced customer and employee experience offerings and supply chain modernization initiatives, which are aimed at accelerating digital transformation services for enterprise customers.
Some players provide technological solutions (products and services) to help organizations connect, interact and transact with customers. Others develop and market information recognition, data entry software, systems and technologies.
4 Computer - Integrated Systems Industry Trends in Focus
Integrated Solutions Driving Demand: The industry is experiencing a surge in demand for integrated solutions across enterprises of all scales, driven by increasing investments in cutting-edge software technologies, such as the Internet of Things (IoT), big data analytics, artificial intelligence (AI) and blockchain. This demand is further fueled by the significant opportunities presented by business analytics, cloud computing, mobile technologies, security solutions and social business platforms.
Additionally, industry players are anticipated to benefit from the recovering global IT spending, as predicted by Gartner, enabling them to capitalize on the rising demand for comprehensive and seamless integrated solutions that can streamline operations and enhance productivity across various sectors.
Solid Adoption of Multi-Cloud Model: The industry is witnessing the robust adoption of the multi-cloud model as enterprises seek to achieve better scalability and optimize resource utilization. This trend is expanding the scope of industry participants, enabling them to leverage the benefits of cloud and hardware/software virtual technologies, which are anticipated to favor the industry's growth.
Moreover, as growth and investment opportunities in developed countries continue to slow down, emerging economies are poised to play a crucial role in driving the industry's future. The multi-cloud model's increasing popularity, coupled with the tailwinds from cloud and virtual technologies and the potential of emerging markets, presents a strong foundation for industry participants to capitalize on new opportunities and foster sustained growth.
Supply-Chain Bottlenecks and Backlogs: Industry participants are grappling with a multitude of challenges, including supply constraints, softening demand for servers and cognitive applications, as well as delays in customer acceptance. These factors have contributed to consistent backlog levels, particularly in the Compute, High-Performance Computing & Mass Storage Class and Storage segments. Furthermore, the industry's outlook is affected by the volatility in foreign exchange rates, primarily due to the prevailing macroeconomic scenario and headwinds in emerging markets.
Semiconductor Chip Shortage Mars Prospects: The industry is grappling with the ripple effects of the ongoing semiconductor chip shortage, which has posed significant challenges for participants. The time-consuming business model transition to cloud computing has compounded these difficulties, requiring companies to navigate complex operational shifts amid supply chain disruptions. Moreover, the prospects of industry players are further dampened by lower spending across datacenter systems, primarily due to component shortages, particularly in memory and CPUs, as well as a deceleration in hyperscale spending.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Computer – Integrated Systems industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #172, which places it in the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential.
Despite the gloomy industry outlook, a few stocks are worth watching based on a strong earnings outlook. Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector & S&P 500
The Zacks Computer – Integrated Systems industry has underperformed the broader Computer and Technology sector and the Zacks S&P 500 composite in the past year.
The industry has declined 3.7% over this period against the S&P 500 and the broader Computer and Technology sector’s respective returns of 20.7% and 21%.
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing computer-integrated systems stocks, we see that the industry is currently trading at 3.69X compared with the S&P 500’s 5.51X. It is also below the sector’s trailing 12-month P/S of 6.85X.
Over the past five years, the industry has traded as high as 5.27X and as low as 1.85X, with the median being at 2.78X, as the chart below shows.
4 Computer-Integrated Systems Providers to Watch
International Business Machines: IBM is experiencing robust revenue growth in its software division, primarily fueled by increasing hybrid cloud adoption and strong performance across RedHat, automation, data analytics, AI, and security solutions. The company's long-term trajectory is anchored in these three pillars as enterprises increasingly manage complex, heterogeneous cloud workloads, particularly with the proliferation of traditional cloud-native applications and generative AI deployments. This complexity has driven organizations toward cloud-agnostic, interoperable approaches to multi-cloud management, directly benefiting IBM's hybrid cloud portfolio. IBM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Strategic acquisitions have significantly enhanced IBM's market position. The HashiCorp acquisition complements RedHat's offerings with advanced cloud infrastructure management capabilities, strengthening IBM's hybrid multi-cloud value proposition. Similarly, the StreamSets and webMethods acquisitions have bolstered IBM's integration framework, combining API management and data ingestion functionalities with existing DataStage and Databand platforms to create comprehensive application and data integration solutions.
Central to IBM's AI strategy is the Watsonx platform, designed to deliver enterprise-ready foundational models through three integrated products: watsonx.ai for foundation models and generative AI development, watsonx.data for open lake house architecture data storage, and watsonx.governance for responsible AI workflow implementation. This platform positions IBM at the intersection of enterprise productivity and responsible AI deployment.
The Zacks Consensus Estimate for its 2025 earnings has moved north by 1.4% to $10.91 per share in the past 30 days. IBM shares have gained 15.6% in the year-to-date period.
Advanced Micro Devices: This Zacks Rank #3 company continues to strengthen its competitive position through strategic product development and key partnerships in the enterprise data center space. The company's fourth-generation EPYC CPUs serve as the foundation for its expanding data center presence, while its specialized portfolio, including the Instinct MI300X Series AI accelerators and Versal RF Series Adaptive SoCs, addresses growing market demand for AI-specific hardware.
The company's partner ecosystem represents a significant competitive advantage, with major technology leaders deploying AMD solutions at scale. Meta Platforms has integrated MI300X accelerators to power its advanced Llama 405B frontier model and enhanced its OCP-compliant Grand Teton platform for large-scale AI inferencing. Microsoft has deployed MI300X technology across multiple GPT-4 Copilot services, while IBM is incorporating these accelerators into its Watson X AI platform for enterprise AI applications.
Dell Technologies exemplifies how these partnerships create end-to-end solutions, offering MI300X as part of its AI factory solution suite and providing pre-configured containers through Dell Enterprise Hub on Hugging Face. This expanding deployment footprint, particularly among hyperscalers, positions AMD for continued revenue growth in its data center segment through first-quarter 2025 and beyond.
The Zacks Consensus Estimate for 2025 earnings has moved south by 3.5% to $4.4 per share in the past 30 days. AMD shares have lost 15.8% in the year-to-date period.
Micron Technology: This Zacks Rank #3 company has strategically positioned itself at the vanguard of semiconductor evolution by focusing on high-growth segments, including AI, data centers, automotive, and industrial IoT. The proliferation of AI applications has catalyzed unprecedented demand for advanced memory solutions, particularly DRAM and NAND technologies, where Micron maintains a competitive advantage through continuous innovation. The company's deliberate diversification away from volatile consumer electronics toward more stable sectors represents a calculated risk-mitigation strategy, enhancing resilience against the industry's inherent cyclicality.
Notably, Micron has capitalized on escalating demand for high-bandwidth memory (HBM), driven primarily by AI workload requirements. Its HBM3E products have garnered market attention for superior power efficiency and bandwidth capabilities. NVIDIA's January 2025 announcement identifying Micron as a key supplier for GeForce RTX 50 Blackwell GPUs validates Micron's strategic positioning within the HBM ecosystem.
Furthermore, Micron's planned HBM advanced packaging facility in Singapore, scheduled to commence operations in 2026 with expansions by 2027, demonstrates forward-looking investment in production infrastructure. This development aligns with Micron's AI-centric growth trajectory while simultaneously creating supply chain redundancy and expanding packaging capacity for high-performance memory solutions.
The Zacks Consensus Estimate for its fiscal 2025 earnings has remained steady at $6.85 per share in the past 30 days. Shares of MU have gained 1.2% in the year-to-date period.
IonQ: IonQ has executed a methodical global expansion strategy, establishing itself as the leading pure-play quantum computing company with significant momentum in the Asia-Pacific region. The company's distribution partnership with Toyota Tsusho Corporation provides strategic entry into Japan's quantum market, complementing existing collaborations with Hyundai Motors and prestigious South Korean universities. Further cementing its Japanese presence, IonQ signed an MOU with AIST's Global Research and Development Center, strengthening its foothold in Japan's research ecosystem.
Technologically, IonQ achieved a landmark milestone with Ansys by demonstrating quantum computing's superiority over classical methods in designing medical devices, achieving processing speeds up to 12% faster. This practical application represents a pivotal moment for quantum computing deployment. This Zacks Rank #3 company's selection for DARPA's Quantum Benchmarking Initiative further validates its technological leadership in defining utility-scale quantum performance standards.
Through strategic acquisitions of ID Quantique and Qubitekk, IonQ has positioned itself at the forefront of quantum networking and communications, significantly expanding its addressable market. These moves have created synergies in secure quantum communication technologies while building an impressive portfolio of nearly 900 patents across quantum computing, networking, and sensing applications, establishing a formidable intellectual property advantage.
The Zacks Consensus Estimate for 2025 earnings is pegged at a loss of $1.13 per share, unchanged in the past 30 days. Shares of IONQ have lost 23.8% in the year-to-date period.
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This article originally published on Zacks Investment Research (zacks.com).
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