Artificial intelligence frenzy underpins $14bn Juniper deal

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Twenty-five years on from the dotcom internet bubble, the tech sector is entering an artificial intelligence frenzy.

Juniper Networks has lived long enough to prosper from both. On Tuesday, Hewlett Packard Enterprise announced that it would acquire Juniper for $14bn, representing a juicy 32 per cent premium to the latter’s previous trading price. HPE hopes that Juniper’s switches and routers will fit nicely into its existing hardware and software offering for corporate computing systems. 

In particular, HPE points to data centres running intensive AI applications, which Juniper products can help to manage. HPE says the combination is worth $450mn of annual cost synergies, or nearly a tenth of Juniper’s revenue.

The all-cash buyout is transformative for HPE, whose enterprise value is $30bn. Its shareholders, however, are worried about the fit and new leverage. It shed $2bn in market cap when the news was announced.

For Juniper, this marks the conclusion of a wild ride as a public company. The takeout price represents an annualised appreciation from its 1999 initial public offering of about 8 per cent, excluding the small dividend it has paid in the past decade.

That index fund-like return belies the stock’s extreme moves, however. At its peak in 2000, market capitalisation reached $76bn. This was a year in which revenues hit $700mn. By 2002, the equity value had fallen to less than $2bn.

Juniper was among a group of telecom equipment manufacturers that were expected to be major winners of the internet buildout. Cisco Systems, the star of the lot, reached a market cap of $550bn. Today, a much more diversified Cisco is down to $200bn. Some companies, such as Alcatel-Lucent and Brocade, were eventually acquired. Others, like Nortel Networks and Global Crossing, went bust. 

Many of the rest, including the likes of Juniper, Ciena, Corning and JDS Uniphase, have continued to plug along in mostly obscurity as public companies with multibillion-dollar market caps. Juniper’s current operating profit margin of 17 per cent substantially exceeds that of HPE, itself a survivor of multiple tech cycles.   

Excitement around AI has boosted the likes of chipmaker Nvidia, which now trades at 22 times its 2024 expected revenue. OpenAI, which has barely been commercialised yet, is reported to have reached a private market valuation of $86bn.

Whether those figures are grounded in eventual profits remains to be seen. Juniper shows that even if the grandest expectations are not met, a useful business may exist underneath.

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