12 Best Data Center Stocks To Buy According to Analysts
In this piece, we will take a look at the 12 best data center stocks to buy according to analysts. If you want to skip our coverage of the data center industry, which is one of the hottest in the world right now, then you can skip ahead to take a look at the 5 Best Data Center Stocks To Buy According to Analysts.
The stock market of 2024 is vastly different from what investors were expecting at the start of the fourth quarter of 2021. Back then, the Federal Reserve had yet to start to raise interest rates, even though some voices on Wall Street were raising alarm bells about the effects of the monetary policy and stimulus packages in the era of COVID-19 lock downs. High rates naturally do not bode well for high growth sectors, and technology stocks big and small had a rough time on the market the next year particularly as the Russian invasion of Ukraine upended global food and energy markets and spurred multi year high inflation levels which made some question whether consecutive 75 basis point hikes by the Federal Reserve were still a bit low.
Now, with the first quarter of 2024 coming to an end, the stock market is a fundamentally changed environment due to the rise of NVIDIA Corporation (NASDAQ:NVDA). NVIDIA has shown to be the hottest artificial intelligence stock on Wall Street, and at its heart is the multi-billion global data center industry. While most people experience the user side of AI, at its heart, the technology is part of a broader set of data analysis techniques such as machine learning.
Whether it’s AI or ML, both require copious amounts of data to spearhead leading edge applications in high technology industries such as semiconductor fabrication. Processing and storing this data requires considerable data center facilities, which are large scale computing houses that ‘host’ equipment such as graphics processing units (GPUs) and storage modules.
A variety of firms cater to the needs of the global data center industry. Some of the best known in this area are data center hardware manufacturers such as NVIDIA Corporation (NASDAQ:NVDA), Intel Corporation (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD), and the Taiwan Semiconductor Manufacturing Company (NYSE:TSM). On the software side, firms such as Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corporation (NYSE:IBM), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG) provide businesses with software environments to generate meaningful insights from their data.
Therefore, to analyze the performance of data center stocks, one can either see how individual firms such as the equities listed above are performing or track a collection of stocks called an exchange traded fund (ETF). Most popular data center ETFs also include real estate investment trusts (ETFs) due to the sizeable real estate requirements of operating and owning data centers. One such ETF is the Global X Data Center REITs & Digital Infrastructure ETF. Its six month, 12 month, and 36 month year returns sit at 14.5%, 22.27%, and 2.10%, respectively. As expected, the ETF’s annual returns in 2022 were negative, as the broader technology sector took a beating.
Finally, one stock that helps keep track of the broader data center industry might be faring is Digital Realty Trust, Inc. (NYSE:DLR). Here’s what Baron Funds had to say about this particular stock in its Q4 2023 investor letter:
Following strong share performance, we trimmed our large investment in data center REIT Digital Realty Trust, Inc. We remain optimistic about the long-term potential for the company.
Data center landlords such as Digital Realty (and Equinix, Inc.) are benefiting from record low vacancy, demand outpacing supply, more constrained power availability, and rising rental rates. Several secular demand vectors, which are currently broadening, are contributing to robust fundamentals for data center space globally. They include the outsourcing of information technology infrastructure, increased cloud computing adoption, the ongoing growth in mobile data and internet traffic, and artificial intelligence as a new wave of data center demand.
In the last few months, we have also spent time with CEO Andy Power of Digital Realty. Over the last few years, Andy and Digital Realty’s management team have been undergoing a business transformation, which accelerated after its acquisition of Interxion in March 2020, a pure-play European network-dense data center operator. The company has been shedding non-core slower-growth assets, investing and expanding in Europe, growing its retail colocation business, improving its balance sheet, and adding operational expertise by supplementing new management leadership. We have spent a significant amount of time with Andy over the years and believe the investments the company has made are on the cusp of bearing fruit and will pay dividends for years to come. In addition, we believe the fundamentals in its core business are…
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