Morgan Stanley: The outlook for the communication and networking equipment industry is positive in 2025. Nutanix (NTNX.US) is the top choice.

Morgan Stanley releases a research report on the communication and networking equipment industry. Morgan Stanley points out that the survey results of Chief Information Officers (CIOs) of enterprises in the fourth quarter of 2024 indicate that the communication spending environment will improve in 2025, and a broader IT budget will be healthier. The survey results show that the communication industry is expected to grow by 2.9% in 2025, higher than previously expected. In addition, the overall IT budget is expected to grow by 3.7% in 2025, also higher than previously expected. Networking equipment is expected to receive priority consideration in the IT budget, with a projected 4% increase in maximum expenditure in 2025. In the supportive budget environment of 2025, Morgan Stanley believes that networking equipment remains an area for incremental investment and positive bias. Factors favorable to the growth trend of networking equipment identified in the survey include: continued increase in the long-term use of public cloud; although artificial intelligence/machine learning remains a top priority for CIOs in 2025, around 39% of CIOs expect deployment by 2026 or later as many companies are still looking for more productized approaches. The quarterly growth trend of communication software will remain stable, with a slight increase in defensive and priority aspects within related categories. Morgan Stanley states that compared to previous surveys, collaboration software, contact/customer service software/equipment, and IP voice are considered more defensive in times of economic downturn. The survey results from Morgan Stanley also indicate that compared to previous surveys, storage hardware is more likely to have budget cuts, with storage hardware and flash having a slight decrease in priority for CIOs. The bank points out that this indicates that the storage spending environment is still sluggish and that the recovery of storage spending is slow. Morgan Stanley states that with the improvement of IT budgets and the normalization of inventory levels, companies will face favorable environments. Given the favorable corporate structure and reasonable valuations, the bank is bullish on Nutanix (NTNX.US), Cisco Systems, Inc. (CSCO.US), and Hewlett Packard Enterprise Co. (HPE.US). Among them, Nutanix is the bank's top pick.