Investing is often about timing and basic predictive analysis. That is, you want to have your capital in sectors that are likely to drive the economy, not only today but into the future.
In 2024, one of those areas continues to be data centers. Unlike cloud storage, data centers are physical locations that house equipment such as computers and servers. These centers require a massive amount of electricity to run 24/7, but also require constant cooling.
This is where the predictive analysis part comes in. Many data center stocks have risen sharply in the last 12 to 18 months. While investors have profited from that trend, there is some concern that the sector is reaching the saturation point. But it seems likely that the world will need to house more data, not less - particularly as demand for artificial intelligence applications grows.
In this special presentation, we look at seven data center stocks that are good investments today and for many years to come.
Quick Links
- NVIDIA
- Advanced Micro Devices
- Micron Technology
- Equinix
- Iron Mountain
- Crown Castle
- Global X Data Center & Digital Infrastructure ETF
#1 - NVIDIA (NASDAQ:NVDA)
NVIDIA Corp. (NASDAQ: NVDA) has been one of the companies benefiting the most from data center growth. The chip maker has the graphic processing unit (GPU) chips that are needed to handle the high-speed requirements of AI applications.
The company has a massive lead in market share that has allowed it to have ample pricing power. And even though the company announced a delay in its next-gen AI chip, Blackwell, it will still command a hefty chunk of the chip market. And that says nothing about the company’s foray into networking.
As of August 2024, NVDA stock is up 154% for the year. To this point, investors are willing to overlook the company’s lofty 51x forward earnings and 39x price-to-sales (P/S) ratio. Analysts continue to increase their price targets for NVDA stock, which suggests that they believe the company will continue to deliver earnings growth that justifies the stock’s lofty valuation.
About NVIDIA
NVIDIA Corporation provides graphics and compute and networking solutions in the United States, Taiwan, China, Hong Kong, and internationally. The Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU or vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building and operating metaverse and 3D internet applications.
Read More - Current Price
- $145.89
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 40 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $154.63 (6.0% Upside)
#2 - Advanced Micro Devices (NASDAQ:AMD)
If there’s a 1A to NViDIA’s leadership in the chip sector, it’s Advanced Micro Devices Inc. (NASDAQ: AMD). The chipmaker has alternatives to the AI accelerator chips that data centers need. However, with only $4.5 billion in data center revenue in contrast to NVIDIA’s $100 billion, AMD is still a distant second, but could potentially gain market share if NVIDIA’s Blackwell chip delay is longer than expected.
That said, the company’s recent $5 billion acquisition of ZT Systems may help close its gap with NVIDIA in a different way. In this case, ZT Systems can provide crucial networking technology to AMD that currently is the sole domain of NVIDIA. This has the potential to now only raise AMD’s floor but also lower NVIDIA’s ceiling (i.e.profit margins).
And whatever AMD may lack in data centers, it makes up for as the leader in GPUs for gaming systems. Plus, the company will benefit from a refresh cycle in central processing units (CPUs).
About Advanced Micro Devices
Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products.
Read More - Current Price
- $137.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 29 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $192.79 (40.1% Upside)
#3 - Micron Technology (NASDAQ:MU)
Micron Technology Inc. (NASDAQ: MU) is another chipmaker to consider among data center stocks. Rather than compete with NVIDIA, Micron complements its offerings by being the industry leader in memory.
Like the chip sector in general, the fortunes of memory chip companies are governed by the laws of supply and demand. However, demand for AI applications, and the high-bandwidth memory (HBM) those applications will take, is likely to fuel a super cycle in the memory market that Grand View Research estimates will more than double from $111 billion to $240 billion by 2030.
MU stock is up 55.9% in the last 12 months and over 16% in 2024. However, the stock is down 23.25% in the three months ending August 26, 2024. But with analysts projecting earnings growth of over 1,400% in the next 12 months, it’s likely that Micron is creating an enticing entry point for opportunistic investors.
About Micron Technology
Micron Technology, Inc designs, develops, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit, Mobile Business Unit, Embedded Business Unit, and Storage Business Unit. It provides memory and storage technologies comprising dynamic random access memory semiconductor devices with low latency that provide high-speed data retrieval; non-volatile and re-writeable semiconductor storage devices; and non-volatile re-writable semiconductor memory devices that provide fast read speeds under the Micron and Crucial brands, as well as through private labels.
Read More - Current Price
- $98.37
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 26 Buy Ratings, 1 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $143.04 (45.4% Upside)
#4 - Equinix (NASDAQ:EQIX)
Real estate investment trusts (REITs) are another way to play the expected growth in data centers. Equinix Inc. (NASDAQ: EQIX) is the world’s largest digital infrastructure company and the largest pure-play data center REIT in the United States.
The company’s network is composed of 260 data storage centers in multiple regions that keeps cloud providers in close proximity to its end users. It has strategic partnerships with Microsoft Corp. (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOG), and Oracle Corp. (NYSE: ORCL).
Where Equinix stands out in its capital-light, Xscale initiative that allows the company to expand its global footprint through a combination of leasing properties and entering into joint ventures. In addition to allowing for rapid growth, this model also provides the company with long-term sustainability.
EQIX stock is up just 2.46% in 2024. However, the stock has had a 24% swing from its peak to trough this year. The lackluster performance is primarily due to the company continuing to post some substantial misses on earnings. But EQIX has a total return of 64.63% in the past five years which includes the dividend that it’s required to pay as a REIT.
About Equinix
Equinix (Nasdaq: EQIX) is the world's digital infrastructure company . Digital leaders harness Equinix's trusted platform to bring together and interconnect foundational infrastructure at software speed. Equinix enables organizations to access all the right places, partners and possibilities to scale with agility, speed the launch of digital services, deliver world-class experiences and multiply their value, while supporting their sustainability goals.
- Current Price
- $918.94
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $952.88 (3.7% Upside)
#5 - Iron Mountain (NYSE:IRM)
Iron Mountain Inc. (NYSE: IRM) is another REIT to consider for exposure to the data center sector. The company has a 66-year history that began with the company storing paper documents. It has since made the digital pivot and today stores physical and/or digital assets for over 240,000 businesses.
The company’s reputation for security is a favorite of financial, health care, and government entities. However, it has a broad customer base that includes approximately 90% of the Fortune 1000. This also ensures a predictable and growing revenue stream. In fact, in the last four quarters, revenue is up 24% year-over-year and earnings per share are up 13% in that period.
IRM stock is up 63% in 2024 and with expected earnings growth of 6.8% over the next 12 months, there may be some concern about the company’s valuation. However, trading at just 27x forward earnings, Iron Mountain should be a stock investors have on their radar for any dip.
About Iron Mountain
Iron Mountain Incorporated (NYSE: IRM) is a global leader in information management services. Founded in 1951 and trusted by more than 240,000 customers worldwide, Iron Mountain serves to protect and elevate the power of our customers' work. Through a range of offerings including digital transformation, data centers, secure records storage, information management, asset lifecycle management, secure destruction and art storage and logistics, Iron Mountain helps businesses bring light to their dark data, enabling customers to unlock value and intelligence from their stored digital and physical assets at speed and with security, while helping them meet their environmental goals.
- Current Price
- $116.30
- Consensus Rating
- Buy
- Ratings Breakdown
- 6 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $129.40 (11.3% Upside)
#6 - Crown Castle (NYSE:CCI)
Crown Castle (NYSE: CCI) is a REIT of a different sort. The company operates and leases over 40,000 cell towers and approximately 90,000 route miles of fiber supporting small cells and fiber solutions across the United States.
Where Crown Castle fits in with the data center market is through its colocation services. This is where the company provides its customers with high-bandwidth, low-latency connectivity to help them deliver the redundancy needed for mission-critical information and applications.
The stock is down about 1.3% in 2024 and much of that has to do with revenue and earnings that are falling YOY. That’s largely due to lost revenue as a result of the merger of Sprint with T-Mobile US Inc. (NASDAQ: TMUS). Plus, high-yielding REITs like Crown Castle became less attractive as interest rates climbed to 5%.
However, with interest rates likely to fall back, it should create a favorable environment for companies to look at Crown Castle and its 5.54% dividend yield.
About Crown Castle
Crown Castle owns, operates and leases more than 40,000 cell towers and approximately 90,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. This nationwide portfolio of communications infrastructure connects cities and communities to essential data, technology and wireless service - bringing information, ideas and innovations to the people and businesses that need them.
- Current Price
- $104.38
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $116.87 (12.0% Upside)
#7 - Global X Data Center & Digital Infrastructure ETF (NASDAQ:DTCR)
Many investors prefer the simplicity of exchange-traded funds (ETFs) to get exposure to a broad sector like data centers. If ETFs are more your style, you can look at the Global X Data Center & Digital Infrastructure ETF (NASDAQ: DTCR).
This fund will only be five years old in October 2024 and has approximately 25 holdings. That’s a significant reason why it only has about $93 billion in assets as of this writing. The fund managers are investing heavily in companies that focus on generative AI which they believe will grow at a pace of about 9.5% annually for the foreseeable future.
The fund’s performance has mirrored the performance of the technology sector, hitting its peak in late 2021 and bottoming out in late 2022. However, the fund is up approximately 37% since that point, and with the expected growth in the data center market and an expense ratio of around 0.50%, this is a fund with plenty of room to run.
About Global X Data Center & Digital Infrastructure ETF
The Global X Data Center And Digital Infrastructure ETF (DTCR) is an exchange-traded fund that mostly invests in real estate equity. The fund tracks a market-cap-weighted index of global equities involved in data center REITs and related digital infrastructure companies. DTCR was launched on Oct 27, 2020 and is issued by Global X.
- Current Price
- $17.08
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
What this presentation should make clear is that the opportunity in data centers is still in its early stages. Even without AI, data is the engine of the digital economy. But since we're living in the early stages of the AI revolution, the need to house data has plenty of runway left. That means there's still time to profit from data center stocks, if you haven't done so already.
As this report also shows, there are different ways for you to get exposure to the data center sector. You can look at companies providing the hardware, the REITs that are renting space, or ETFs that let you invest in all of that and more.
Your MarketBeat All-Access subscription allows you to create an unlimited number of watchlists. So you can create one specifically for data center stocks and never miss an update that impacts one or more of the stocks on that list.
More Investing Slideshows:
