The Internet has drastically transformed businesses and institutions over the past three decades. Due to the rapid digitization of modern life, corporations and other entities rely on the Internet to deliver goods and services to billions of individuals on a daily basis.

This has led to the rapid acceleration of capital expenditure on infrastructure related to the upkeep of Internet-reliant services. According to forecasts from Gartner, worldwide information technology (“IT”)-related spending is expected to reach $5.43 trillion this year, an increase of around 7.9% from 2024.

While this increase can be partly attributed to the artificial intelligence (“AI”) boom’s demand for data centers, this isn’t the only factor that’s going to drive IT spending moving forward.

As businesses, governments, and educational institutions continue to rely on the Internet to deliver goods and services, they will likewise need to acquire and maintain IT infrastructure to manage and expand their operations.

That’s why IT solutions providers like CDW Corporation (CDW) will become crucial as the global economy continues to barrel toward digitization.

Founded in 1984 and based in Illinois, the company provides a wide range of IT solutions to over 250,000 business, government, education, and healthcare customers across the U.S., the U.K., and Canada. The firm has a current addressable market of around $440 billion as of December 2024.

CDW’s operations are currently divided into three segments: the Corporate segment which services private sector customers; the Small Business segment caters to businesses that have a smaller headcount; and the Public segment dedicated to government agencies, education, and healthcare institutions. 

The company offers a wide variety of IT-related offerings which span hardware products like network hardware and software offerings related to communication, education, networking, and graphics and design.

More importantly, CDW offers solutions which include cloud and hybrid infrastructure, AI and data, digital enablement for an institution’s workforce.

Last year, the company generated strong returns with a Uniform return on assets (“ROA”) of 37% while simultaneously delivering a Uniform asset growth of 17%.

Yet despite a strong showing, the company only trades at a Uniform P/E of 17.8x, well below corporate averages.

At this valuation, the market is expecting CDW’s returns to shrink in a few years.

We can see what the market thinks about this company through our Embedded Expectations Analysis (“EEA”).

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At current valuations, the market expects the company’s Uniform ROA to decline to 30% by 2029, well below the company’s historical levels of performance.