In this article, we will take a detailed look at the 11 best data center stocks to buy according to analysts.
In the ever-evolving landscape of technology, data centers have emerged as the unsung heroes that underpin our digital world. These critical infrastructures are not just the backbone of the internet; they are the engine driving the exponential growth of data, cloud computing, and advanced digital services. The data center industry is on a trajectory of significant expansion, with the market size projected to reach an impressive $418 billion by 2030, according to estimates from IndustryARC. This represents a robust compound annual growth rate (CAGR) of 9.6% during the forecast period from 2023 to 2030. This remarkable growth is fueled by a combination of factors that are reshaping the data center landscape, making it a crucial sector for both technological advancement and investment opportunities.
At the heart of this growth is the increasing demand for hyper-scalability, sustainability, and automation in data centers. In today’s digital age, businesses and organizations require data centers that can scale rapidly to accommodate ever-increasing data volumes, support advanced technological applications, and provide reliable and efficient services. Hyper-scalability, which refers to the ability of data centers to scale up their resources rapidly and efficiently, is becoming a vital requirement as data usage continues to surge. This demand for scalability is driven by the rise of cloud computing, big data, and the Internet of Things (IoT), all of which require robust and flexible data center solutions.
Sustainability is another critical factor influencing the data center market. As environmental concerns become more prominent, there is a growing emphasis on creating data centers that are energy-efficient and environmentally friendly. Green data centers, which focus on reducing energy consumption and minimizing environmental impact, are gaining traction as both businesses and consumers become more eco-conscious. The Department of Energy highlights that data centers account for approximately 2% of all electricity used in the U.S., underscoring the need for more sustainable practices in the industry. Automation is also playing a significant role in transforming data centers.
Modern data centers are increasingly adopting automation technologies to enhance operational efficiency, reduce human error, and streamline processes. Automation in data centers includes everything from automated cooling systems to intelligent data management solutions, all of which contribute to more efficient and reliable operations. The market dynamics of data centers are further influenced by the adoption of advanced technologies such as Artificial Intelligence (AI), Machine Learning (ML), cloud computing, and edge computing.
AI and ML are revolutionizing data center management by enabling predictive maintenance, optimizing resource allocation, and enhancing overall performance. For instance, AI-driven systems can analyze data center operations in real-time, identify potential issues before they become critical, and automate corrective actions. This proactive approach not only improves operational efficiency but also extends the lifespan of data center equipment.
Cloud computing has become a cornerstone of modern IT infrastructure, and its growth is driving increased demand for data centers. As businesses and individuals continue to shift towards cloud-based services, the need for data centers that can support these services is growing. Cloud computing allows for the storage and processing of vast amounts of data in remote data centers, providing flexibility and scalability that traditional on-premise solutions cannot match.
Edge computing is another transformative technology impacting the data center industry. Edge computing brings data processing closer to the source of data generation, reducing latency and improving the performance of applications that require real-time data processing. This shift towards edge computing is driving the development of smaller, geographically distributed data centers that can support the growing demand for low-latency applications and services.
The impact of the COVID-19 pandemic on the data center industry cannot be understated. The pandemic accelerated the digital transformation of businesses and highlighted the critical role of data centers in supporting remote work, online services, and increased internet traffic. With fewer people out in public during the pandemic, global internet traffic surged as more people worked and engaged online from home. This increase in demand led to a 30-35% rise in data center capacity in 2021, as organizations sought to support remote work and ensure the continuity of their operations.
The pandemic also underscored the importance of data centers in maintaining business operations and delivering essential services. Data centers became the backbone of remote work, online education, telemedicine, and other critical services that became indispensable during the pandemic. As a result, the data center market experienced accelerated growth, and this trend is expected to continue as businesses and individuals increasingly rely on digital solutions.
Geopolitical events, such as the Russia-Ukraine crisis, have also impacted the data center industry. The ongoing conflict has led many companies to reassess their operations in the region, with some choosing to suspend or withdraw their services. For example, SAP SE announced in March 2022 that it would halt sales of new products in Russia and shut down all data centers in the country. This situation highlights the need for data center operators to have resilient and adaptable strategies to navigate geopolitical uncertainties.
Regionally, North America remains a dominant force in the data center market, holding a substantial market share. The region’s dominance is attributed to significant investments by major players and the high adoption of advanced technologies. In 2021, North America saw the launch or construction of over 100 data center projects, with major colocation service providers and hyper-scale operators leading the way.
The IT infrastructure segment holds the largest market share within the data center industry. This segment encompasses the hardware, software, and network components required to support data center operations. As businesses continue to migrate towards data center solutions for improved data management and operational efficiency, the demand for IT infrastructure is expected to grow. This growth is further fueled by the increasing adoption of automation and enhanced storage solutions.
Hyper-scale data centers are another significant segment within the industry. These data centers are designed to handle massive volumes of data and high computing power requirements. The rise in IoT-connected devices and the growing emphasis on processing large volumes of digital data are driving the demand for hyper-scale data centers. These facilities are equipped to support the high-performance needs of modern applications and services.
The emergence of green data centers represents a positive shift towards sustainability in the industry. Green data centers focus on reducing energy consumption and minimizing environmental impact. As businesses and consumers become more environmentally conscious, the demand for green data centers is expected to increase. This trend aligns with broader efforts to promote sustainability and address climate change.
Data security remains a critical concern for data centers, especially those handling sensitive information. According to industry reports, a significant percentage of corporate data centers worry about data security. Ensuring robust security measures is essential for protecting data and maintaining trust with clients and customers. The data center industry is undergoing a period of rapid growth and transformation, driven by technological advancements, increased demand for digital services, and a focus on sustainability.
As the digital landscape continues to evolve, data centers will play a crucial role in supporting the infrastructure needed for modern technology and services. The market’s growth is fueled by factors such as hyper-scalability, automation, and the adoption of advanced technologies, while challenges like data security and geopolitical uncertainties also shape the industry’s future.
For investors, the data center sector presents a promising opportunity, with the potential for significant returns as the industry continues to expand. Understanding the dynamics of the data center market, including the key trends and challenges, will be essential for making informed investment decisions and capitalizing on the growth of this critical sector. With that, let’s take a look at the best data center stocks to buy according to analysts.
Our Methodology
We compiled an initial list of 20 stocks from data center-related ETFs and online rankings. We then selected the stocks with the highest upside potential, as of September 16, and ranked them in ascending order of this metric.
At Insider Monkey we are obsessed with 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).
11. Equinix, Inc. (NASDAQ:EQIX)
Upside Potential: 1.40%
Latest Average Share Price Target: $883.71
Equinix, Inc. (NASDAQ:EQIX) is a leading digital infrastructure company, providing a platform that enables organizations to interconnect foundational infrastructure with speed and agility. As a major player in the data center sector, Equinix, Inc. (NASDAQ:EQIX) plays a crucial role in helping businesses deploy and scale digital services, making it a key stock to consider for data center investments. The company’s extensive global reach, with 264 data centers across 72 metros, uniquely positions it to capture opportunities in the expanding digital and AI landscape.
The Q2 2024 earnings report demonstrated Equinix, Inc. (NASDAQ:EQIX) robust financial performance, reinforcing its bullish outlook. Revenue for the quarter reached $2.2 billion, an 8% year-over-year increase, marking the 86th consecutive quarter of top-line growth. The company’s adjusted EBITDA rose by 17% compared to the same period last year, with strong AFFO (Adjusted Funds From Operations) per share growth as well. This sustained financial growth underscores Equinix’s ability to deliver market-leading returns on capital and scale its operations effectively.
Equinix, Inc. (NASDAQ:EQIX) xScale program continues to drive substantial demand, particularly from AI and cloud service providers. The company recently secured land and power for a new multi-hundred-megawatt xScale campus in Atlanta, highlighting its commitment to expanding its portfolio to meet growing AI infrastructure needs. Additionally, Equinix’s interconnection services saw 9% year-over-year growth, reinforcing its position as a critical player in enabling data center connectivity for enterprises and service providers.
Equinix, Inc. (NASDAQ:EQIX) global expansion strategy remains a key driver of growth. The company’s entry into new markets, such as Malaysia and the Philippines, and its existing stronghold in the Singapore hub, strategically positions it to capitalize on opportunities in the fast-growing Southeast Asian market. Furthermore, Equinix’s focus on sustainability, with initiatives like the heat export program in Paris, showcases its long-term commitment to responsible growth. With a strong balance sheet, deep customer pipeline, and consistent execution, Equinix, Inc. (NASDAQ:EQIX) is poised to continue its growth trajectory. Its solid fundamentals, including rising MR per cabinet and increasing demand for AI-ready data centers, make it a compelling investment in the data center sector.
Baron Real Estate Fund stated the following regarding Equinix, Inc. (NASDAQ:EQIX) in its first quarter 2024 investor letter:
“Following strong relative and absolute performance in 2023, we reduced our position in leading global data center operator, Equinix, Inc. (NASDAQ:EQIX), due to the Fund’s large position size and other compelling new investment ideas that we have been identifying. Equinix continues to be a core position in the Fund, and we remain optimistic about the long-term growth prospects for the company due to its interconnection focus among a highly curated customer ecosystem developed over the past 20-plus years, strong demand and pricing power, favorable supply backdrop, and evolving incremental demand vectors such as AI. We believe Equinix can continue to compound earnings at approximately 10% over the next few years and believe the prospects for strong shareholder returns remain compelling.”
10. VNET Group, Inc. (NASDAQ:VNET)
Upside Potential: 16.70%
Latest Average Share Price Target: $3.35
VNET Group, Inc. (NASDAQ:VNET) is a leading provider of data center and hosting services in China, making it an essential inclusion in any list of top data center stocks. With a range of managed hosting, cloud, and VPN services, VNET Group, Inc. (NASDAQ:VNET) caters to industries like IT, e-commerce, financial services, and more. The company’s extensive infrastructure, including both retail and wholesale data centers, allows it to support a variety of businesses, from small enterprises to large-scale cloud providers. This versatility, combined with the rising demand for data center solutions, positions VNET Group, Inc. (NASDAQ:VNET) as a key player in the sector.
In its Q2 2024 earnings report, VNET Group delivered strong financial results, reinforcing its standing in the data center industry. The company reported net revenues of RMB 1.99 billion, a 9.4% year-over-year increase, showcasing its consistent revenue growth. VNET Group, Inc. (NASDAQ:VNET) adjusted EBITDA also grew by 7.3% to RMB 574 million, reflecting efficient cost management and operational growth. A key driver of this success was the wholesale business, which saw an impressive 81% year-over-year increase in revenue. With a steady capacity of 332 megawatts and a utilization rate of 75.9%, VNET continues to capitalize on the growing demand for data center capacity.
VNET Group, Inc. (NASDAQ:VNET) robust fundamentals extend beyond revenue growth. The company boasts a solid cash position and an unused credit line, which provides ample liquidity for future growth and investments. Additionally, the company has been rapidly expanding its data center capacity, especially in its Ulanqab IDC Campus, which is expected to play a significant role in meeting the surging demand for AI-driven computing power. With a total planned IT power capacity exceeding 1.2 gigawatts, this cutting-edge facility highlights VNET Group, Inc. (NASDAQ:VNET) forward-thinking strategy.
The company’s commitment to innovation and sustainability is also evident in its advanced data center technologies, including high-performance cooling systems. These innovations position VNET Group, Inc. (NASDAQ:VNET) to capture future growth opportunities in AI and other high-performance computing sectors, making it a strong contender in the data center market.