In this article, we discuss the 10 best AI data center stocks.
The AI data center industry is experiencing rapid growth, fueled by the increasing demand for artificial intelligence (AI) applications and the massive computational power they require. AI data centers are specialized facilities designed to handle high-intensity AI workloads, including machine learning, natural language processing, and neural network training. These facilities integrate advanced hardware and software to process large-scale data efficiently, creating a crucial infrastructure for the global digital economy. Leading technology companies are making substantial investments in AI data centers. For instance, Meta announced plans to invest $33 billion in data center expansion to support AI research and development. Google is also investing billions of dollars in AI infrastructure, committing $3.3 billion in just one region of the United States. These investments highlight the significance of AI data centers in the broader tech ecosystem.
AI workloads demand hardware that can process vast amounts of data quickly and efficiently. This need has led to the development of AI-specific chips, such as GPUs (Graphics Processing Units), TPUs (Tensor Processing Units), and ASICs (Application-Specific Integrated Circuits). These chips are essential components in AI data centers.
Read more about these developments by accessing 10 Unsexy AI Stocks According to Goldman Sachs and 10 Buzzing AI Stocks According to Goldman Sachs.
While AI data centers are essential for technological progress, they consume enormous amounts of energy. According to the International Energy Agency, data centers worldwide account for about 1% of global electricity demand, a figure that could increase significantly with the rise of AI. Cooling systems, necessary to maintain optimal hardware performance, further contribute to this energy demand. To address this, companies are increasingly focused on building energy-efficient data centers. For example, Google has implemented machine learning algorithms to reduce energy use in its data centers by 30%.
The AI data center industry will continue to evolve as the demand for AI-driven applications grows. Experts predict a significant shift toward edge computing, where data centers are decentralized and located closer to the source of data generation. This reduces latency and improves performance for real-time AI applications such as autonomous driving and smart cities. Moreover, the integration of quantum computing into AI data centers could revolutionize the field. Quantum computers are capable of processing complex calculations at speeds unattainable by classical computers, making them ideal for AI and big data applications. Companies like IBM and Google are already exploring quantum technology in their AI research.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and Beyond the Tech Giants: 35 Non-Tech AI Opportunities.
A data center filled with the latest servers and networking equipment representing the company’s cutting edge security infrastructure.
Our Methodology
For this article, we sifted through multiple similar rankings and compiled an initial list of 20 stocks. We then ranked the top 10 based on their hedge fund sentiment at the end of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best AI Data Center Stocks
10. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 108
Advanced Micro Devices, Inc. (NASDAQ:AMD) operates as a semiconductor manufacturer. In recent months, the company has positioned itself as an NVIDIA alternative in the AI data center space, offering chips that are cheaper than NVIDIA, but compete on power and efficiency. Businesses have responded positively, with AMD reporting that it sold more than $1 billion worth of these chips in the second quarter of 2024. Data center revenue for the firm reached a record $2.8 billion in the period, a year-on-year increase of more than 110% and accounting for almost half of total sales for the company, which were up close to 10% year-on-year to $5.8 billion. AMD also recently purchased server maker ZT Systems for $4.9 billion.
9. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 120
Micron Technology (NASDAQ:MU) makes and sells memory and storage products. The company markets DRAM and NAND memory products, which are both essential in AI data center CPUs and GPUs. As hyperscalers commit billions towards developing data centers, the firm has witnessed a surge in orders. This has translated to a welcome boost for the earnings. In the fourth quarter of 2024, the firm posted net income of $887 million on revenue of $7.75 billion. This represented a 93% jump from $4 billion in the same quarter a year ago. Non-GAAP earnings were $1.18 a share. Micron Technology said first quarter revenue will be about $8.7 billion, well ahead of Wall Street estimates of $8.21 billion.
8. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) supplies semiconductor infrastructure software solutions. The company has developed a reputation for itself in the custom AI chip market, differentiating itself from competitors in the semiconductor space. In addition to chips, the company offers a range of AI data center solutions, including networking and connectivity products like fiber optics, network adapters, and memory controllers. OpenAI, the most valuable private firm in the world, is working with Broadcom to develop a custom AI chip. OpenAI is the creator of ChatGPT. Broadcom also recently closed the $69 billion purchase of VMware, a cloud computing firm that connects AI data center applications with the cloud.
7. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) makes and sells integrated circuits and semiconductors. It is the largest contract chipmaker in the world, powering devices like the iPhones. In recent years, the company has made significant investments towards developing chip facilities in order to keep up with demand for chips as the AI data center boom sweeps the market. TSM has pledged nearly $65 billion towards a chip facility in Arizona that recently started production. TSM is famous for making high-performance chips, including those built on advanced nodes like 3nm and 5nm, that are used in CPUs and GPUs that handle massive data workloads in AI-driven data centers.
6. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 165
Alphabet Inc. (NASDAQ:GOOG) is a California-based technology company that owns and runs the internet search engine Google. The company has made several announcements regarding massive investments in AI data centers around the world. In late September, the firm pledged $1 billion towards building a data center in Thailand. At the end of August, Google had announced that it would be investing $850 million to open a data center in Latin America. In addition to these, the firm has also pledged billions towards building data centers in the United Kingdom, Singapore, the US, and Malaysia. The company has also used Arm designs to develop a data center chip that offers industry-leading performance and energy efficiency.
5. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) provides graphics, computing and networking solutions. The company has emerged as the most important AI data center stock in the past few months. This is because it has managed to become the biggest provider of data center hardware, like chips and GPUs, to hyperscale customers. The GPU and chips of the firm derive their competitive advantage on power and efficiency. In addition to these, the company has also started focusing on AI software needed to maximize the potential of these chips. Back in 2022, NVIDIA CFO Collete Kress had claimed that the subscription-based GPU model of the firm, which packages AI hardware and software, would drive $1 trillion in revenue for the company.
4. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is a consumer electronics firm. Unlike other hyperscalers, Apple has not pledged a lot of money towards building AI data centers, but has instead focused on developing the chips needed to power these data centers. Even though Apple announced plans to spend nearly $430 billion in capital expenditures over a five year period ending in 2026, most of this capital is geared towards direct spending on US-based suppliers, capital expenditures in the US, and other projects, including dozens of Apple TV productions, per news platform Bloomberg. However, the most significant Apple investment in data centers by far is the Apple Chips in Data Center Project. Under this project, the firm is working with Taiwan Semiconductor Manufacturing to design and produce data center chips.
3. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. At the beginning of this year, the company announced that it would be allocating nearly $37 billion towards capital expenditures, the bulk of which would go towards building AI data centers. This was $2 billion more than anticipated. Susan Li, the chief financial officer at the company, underlined that continued investment in the hardware needed to train and run artificial intelligence systems would necessitate an increase in spending. As part of this effort, the company has struck a geothermal energy deal with Sage and pledged $800 million towards building a data center in India.
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a Washington-based technology company. In 2023, as the AI boom swept the US markets, the tech giant ramped up AI data center expenditures by 50% compared to the previous year, leaping far ahead of competitors like Amazon, whose spending decreased by about 3% that year. Since then, Microsoft has doubled down on this AI bet. This year, the company has partnered with global investment firm BlackRock to start a $100 billion fund to support AI data center growth with investments in energy and technology. It has also pledged more than $4 billion towards AI infrastructure investment in Italy. A report by Business Insider claims that the firm is on track to double data center capacity to 5GW this year.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) operates as a technology conglomerate with core interests in the ecommerce business. A report by news publication Bloomberg earlier this year claimed that the company plans to spend nearly $150 billion in the next decade to develop data centers in a bid to spur AI growth. The report was based on AI infrastructure announcements made by the tech giant in the past few years. Some of the areas in which Amazon has pledged to spend billions to develop data centers include northern Virginia, Oregon, and Mississippi in the US, as well as Saudi Arabia, Malaysia, Spain, and the United Kingdom abroad. Amazon is ramping up investments in data centers to keep pace with rival Microsoft.
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Amazon.com, Inc. (NASDAQ:AMZN) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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