The Future of Data Centers: Key Stocks to Watch
The momentum surrounding the artificial intelligence (AI) boom is creating significant opportunities in the stock market, especially for companies linked to data centers. As we dive into the latest earnings reports, it's clear that giants like Amazon and Microsoft are ramping up their investment in infrastructure to support the AI revolution. Notably, these companies plan to enhance their data center capabilities through 2025 and beyond.
According to research from Grand Valley Research, the global data center market is expected to expand dramatically, growing from approximately $347.60 billion in the following year to about $652.01 billion by 2030. Such promising growth translates to a compound annual growth rate (CAGR) of 11.2% from 2025 to 2030.
While many investors may consider established tech firms in their portfolios, there is a rising interest in additional stocks poised to benefit directly from the infrastructure spending associated with this growth cycle. Today we highlight three compelling candidates.
1. Johnson Controls International: Cooling and Energy Optimization
Johnson Controls International (NYSE: JCI) plays a pivotal role in the backbone of data center infrastructure. The advanced AI chips, including those from NVIDIA and AMD, are producing much more heat than traditional processors, thus requiring superior cooling solutions. This pressing need for effective cooling drives demand for Johnson Controls’ high-performance HVAC systems.
In the context of escalating energy efficiency standards, those managing data centers are tasked with minimizing their power usage effectiveness (PUE), a critical metric in the industry. Johnson Controls' innovative OpenBlue digital platform harnesses AI and the Internet of Things (IoT) technology to optimize operations, refine energy consumption, and ensure seamless management of temperature and airflow in real-time. These advancements not only help to reduce costs but also maximize uptime, which is crucial for data center operation.
Despite facing some short-term volatility, with shares dropping around 7.5% leading into their latest earnings release, JCI's stock seems to have stabilized around its 50-day moving average. Analysts are optimistic, raising the price targets post-earnings thanks to a projected 17% growth in earnings over the next year.
2. American Tower: The Heart of Global Connectivity
American Tower (NYSE: AMT) is recognized primarily for its robust role in the 5G rollout. Yet, the company’s ambitions extend into investing heavily in edge data centers and fiber interconnections. This strategic pivot helps bridge the gap for AI services by facilitating the crucial last-mile connectivity and infrastructure.
American Tower has seen its stock rise impressively by 15.7% in less than a year, a refreshing change for investors who have experienced stagnation over the past five years. The company also boasts an attractive dividend yield of 3.21%, appealing to income-focused investors.
In their most recent earnings report, American Tower delivered results that slightly exceeded expectations on both revenue and earnings per share. The current forward price-to-earnings (P/E) ratio, at around 20x, offers an attractive valuation relative to growth prospects, as analysts suggest a price target of $243.88—a lucrative upside of approximately 15% from current trading levels.
3. Vertiv Holdings: Benefitting from Hyperscaler's Spending
Vertiv Holdings (NYSE: VRT) has emerged as one of the standout stocks in the industrial sector, boasting an impressive 824% return over the last five years. With current trading close to the consensus price target of $145.54, some may question if the growth story can continue.
As seen in the latest earnings announcements from major hyperscalers, the demand for Vertiv’s liquid cooling solutions is projected to accelerate, thanks to the evolving architecture in data centers. Despite potential concerns about valuation, the consistent delivery of earnings beats signals strong operational performance. Investors may want to consider a strategic approach by waiting for a favorable entry point, especially as the stock appears to have recently established support around its 20-day simple moving average.
The recent decline of 2.8% seems to signal a temporary pause in momentum, but the technical indicators advise caution, suggesting that investors monitor the market for positive momentum signals before contemplating new positions in VRT stock.
Frequently Asked Questions
1. What are the primary stocks benefiting from AI data center growth?
The stocks highlighted include Johnson Controls International, American Tower, and Vertiv Holdings, all of which cater to the growing demands of data centers amid the AI surge.
2. How is Johnson Controls responding to data center cooling challenges?
Johnson Controls provides advanced HVAC systems tailored for high-density AI environments, utilizing their OpenBlue platform for real-time management of energy efficiency.
3. What role does American Tower play in the development of edge data centers?
American Tower facilitates connectivity essential for AI applications by heavily investing in edge data centers and fiber infrastructure.
4. How has Vertiv Holdings performed in recent years?
Vertiv has delivered substantial returns, with an 824% increase over the past five years, reflecting strong demand for its offerings in advanced cooling products.
5. What indicators should investors watch for in stock performance?
Investors should consider price targets, earnings reports, and technical indicators like the moving averages and relative strength index (RSI) to gauge market trends.
