We believe data centers are currently experiencing a remarkable growth phase as the demand for digital services, cloud computing, and broader GenAI applications increases significantly. In the hyperscale and colocation segments, an estimated 10 GW is projected to commence globally in 2025 (according to JLL Global Outlook). Market intelligence firm Statista forecasts the global data center market to reach $624 billion in 2029, up from $452 billion in 2025, with a CAGR of 8.4%. Meanwhile, a report by Boston Consulting Group (BCG) estimates that to meet the global demand for computing power, leading data center players will need to invest a staggering $1.8 trillion from 2024 to 2030. In essence, it’s a juggernaut poised to reshape how the world consumes and processes information.
There has already been substantial capital investment over the last 3-4 years, transforming the data center industry landscape. Additionally, merger and acquisition activity has surged, with many well-known players now privatized. For instance, three major deals occurred in 2021: KKR and Global Infrastructure Partners acquired CyrusOne for $15 billion, American Tower acquired Coresite for $10 billion, and Blackstone acquired QTS for $10 billion. Later, Switch Inc. was acquired for $11 billion by DigitalBridge and IFM in 2022. These deals and their valuations only underscore the future value of data center assets.
In exploring investment opportunities for this article, we also examined some smaller private operators with intriguing business models, capitalizing on the growing demand for digital infrastructure. One such company is LightEdge, which operates 14 data center locations across the U.S. with a capacity of 30 MW. They offer customized solutions and services, including colocation, hybrid and edge cloud, and managed services. Another notable player is Vantage Data Centers, a private operator owned by DigitalBridge and other investors. Vantage operates in 21 markets worldwide, boasting 23 million square feet of space and 2.6 GW of power.
Flexential is another prominent name, providing tailored hybrid IT solutions through its FlexAnywhere platform. This platform integrates colocation, cloud, connectivity, data protection, and managed and professional services, across three million square feet of data center space in 19 highly connected markets. A recent addition to the emerging data center companies is Fleet Data Centers, launched by Tract Capital at the beginning of 2025. This company aims to develop mega-scale data center campuses with capacities of 500 MW or more, specifically designed for single-user customers. Tract Capital, the founder, is a data center land acquisition and development company led by an experienced team of data center experts.
Beyond our typical U.S. focus, we discovered an interesting Norwegian company, Green Mountain Data Centers. They operate four data centers across Norway and the UK, all running on 100% renewable energy. This small player exemplifies the direction the world should take.
A data center filled with the latest servers and networking equipment representing the company’s cutting edge security infrastructure.
Our Methodology
To identify the 30 best and worst stocks, we conducted extensive research to compile a list of U.S.-listed companies. Our focus included pure-play data center companies and those with significant revenue exposure to this market, or companies critical to the data center sector. Alongside market leaders, we aimed to feature smaller and lesser-known companies, without any market capitalization criteria. It’s important to note that the ‘worst stock’ label in the title is based purely on the potential share price downside from current levels and does not reflect the fundamental quality of the company. Ultimately, the stocks were ranked in ascending order of their upside potential, with the stock having the highest upside potential ranked at the top.
Note: all pricing data is as of market close on January 27.
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).
30. VNET Group, Inc. (NASDAQ:VNET)
Downside Potential: -20%
Number of hedge funds: 13
VNET Group, Inc. (NASDAQ:VNET) is one of the leading pure-play data center providers. It is a Chinese internet data center services provider with a focus on multi-carrier and multi-cloud services. The company offers hosting and related services, including IDC (Internet Data Center) services (both hyperscale and retail colocation), cloud services, and business virtual private networks (VPN) services. These services enhance the reliability, security, and speed of its customers’ internet infrastructure. Operating in more than 30 cities across China, the company services a diversified and loyal customer base of over 7,000 hosting and enterprise clients.
VNET Group, Inc. (NASDAQ:VNET) exhibits strong business momentum with 90% of its total revenue being recurring and a churn rate below 1%. Its current wholesale capacity in service is 558 MegaWatts (MW). Additionally, it has a robust growth pipeline, with 297 MW of wholesale capacity under construction (88.4% already committed under contract by customers) and 490 MW of capacity held for future development (source: company data as of September 2024). The company has also signed a definitive agreement with Dajia Investment Holding Company (a subsidiary of Daija Insurance Group) for a pre-REITs fund to invest in hyperscale data centers in China.
Encouraged by its growth prospects, a Goldman Sachs analyst upgraded the stock in November 2024 from Neutral to BUY with a price target of $7.0. The analyst’s thesis was based on VNET Group, Inc. (NASDAQ:VNET)’s transformation from a traditional retail internet data center operator to a fast-growing China wholesale operator. With over 150% surge in share price since January 2024, the stock already trades around $7.0. Although the stock remains a consensus Buy with most analysts positive, the recent rally seems to have factored in the strong growth prospects, leaving little room for further upside, thus placing the stock near the bottom of this list.
29. Ciena Corporation (NYSE:CIEN)
Downside Potential: -12%
Number of hedge funds: 40
Ciena Corporation (NYSE:CIEN) offers optical and packet networking systems, services, and automation software, forming the essential infrastructure that powers the internet and global communications networks. These services are critical for connectivity within and between data centers. The company’s optical networking solutions, accounting for 66% of its FY 2024 total revenue, are pivotal in enabling high-performing, reliable, efficient, and scalable data center operations. The rising digital demand and bandwidth consumption will drive significant growth in the company’s network expansion.
To enhance its optical networking business and maintain its competitive edge, Ciena Corporation (NYSE:CIEN) is intensifying its R&D efforts, as demonstrated by the recent launch of its next-generation WaveLogic 6 Extreme product. The company also plans to increase investments in photonic line systems and coherent pluggables for data center applications, facilitating business growth. Moreover, restrictions on Huawei have created long-term opportunities for the company amid increasing domestic infrastructure investments by the US Government.
The stock has performed strongly, with its price rallying around 90% over the last year (before the 27th January selloff). While it remains fundamentally robust, the potential for further share price upside is limited due to the recent rally. However, in mid-December 2024, a Jefferies analyst identified Ciena Corporation (NYSE:CIEN) as “a top idea for 2025,” considering it a structural long-term winner at a more attractive valuation. According to the analyst, investors still “grossly underestimate” the impact of AI-based traffic, and the company will benefit from the completion of excess inventory reduction among its Tier 1 customers.
28. Super Micro Computer, Inc. (NASDAQ:SMCI)
Downside Potential: -4%
Number of hedge funds: 33
Super Micro Computer Inc. (NASDAQ:SMCI) designs, develops, and manufactures a comprehensive range of high-performance and high-efficiency servers, storage systems, and networking solutions. These products are extensively used in data centers, cloud computing, AI, 5G, IoT, and edge computing. Given the significant electricity consumption typically associated with high-performance computing, Supermicro’s liquid cooling solutions can reduce operating expenses by up to 40% and enable data centers to operate more efficiently with lower Power Usage Effectiveness (PUE), the ratio of power used by the facility to power used by IT equipment.
Super Micro Computer Inc. (NASDAQ:SMCI) remains a key player in the data center industry. However, its growth narrative encountered an unusual adversary in late August 2024, when short-seller Hindenburg Research accused the company of financial and accounting irregularities. The report also labeled the company a “serial recidivist” citing its temporary delisting in 2018 due to ‘widespread accounting violations’ charges by the SEC, although it later resumed business through an SEC settlement.
In a serious turn of events, Super Micro Computer Inc. (NASDAQ:SMCI) failed to file its 10-K with the SEC in August 2024, and its auditor resigned in late October 2024. The company now faces the risk of being delisted from Nasdaq and has a deadline of February 25, 2025, to file to avoid this. Although Hindenburg Research is now disbanded, the company has some ground to cover to regain investor trust and support its valuation.
27. Uniti Group Inc. (NASDAQ:UNIT)
Downside Potential: 0%
Number of hedge funds: 31
Uniti Group Inc. (NASDAQ:UNIT) is a real estate investment trust (REIT) primarily focused on providing telecommunications infrastructure and fiber optic network solutions. The company acquires and manages a portfolio of telecommunications infrastructure assets, primarily fiber optic networks, leased to telecom providers, wireless carriers, data center operators, and other telecommunications companies. Its fiber infrastructure serves as a crucial backbone for numerous data center operations, delivering high-performance, secure connectivity essential for large-scale data processing and storage needs.
Continuing its growth trajectory, on January 21, 2025, Uniti Group Inc. (NASDAQ:UNIT) announced a significant 20-year long-haul fiber and conduit contract awarded by an existing strategic hyperscale customer. As part of this contract, Uniti will construct over 130 route miles of new multi-conduit systems and high-strand count fiber cables. This new east-west infrastructure will connect key data center locations, providing a diverse path to other north-south, long-haul routes. Commenting on this success, Greg Ortyl, the company’s President of Wholesale & Strategic Accounts, expressed his enthusiasm for the project:
“Uniti’s momentum within the hyperscale space continues and is evidence of the strong demand for our customized infrastructure solutions. We continue to see our hyperscale customers seeking three, four or, sometimes more, fiber paths into strategic data center locations to provide the network redundancy they demand, and we are excited to participate in future solutions that are also strategic for Uniti.”
26. Infinera Corporation (NASDAQ:INFN)
Upside Potential: 1%
Number of hedge funds: 17
Infinera Corporation (NASDAQ:INFN) is a provider of open optical networking solutions and advanced optical transmission equipment, enabling carriers, cloud operators, governments, and enterprises to scale network bandwidth, enhance service innovation, and automate network operations. In 2024, Infinera faced a challenging operating environment due to project delays and weaker trends in key end markets. Consequently, the company’s year-on-year revenue declined by 22%, 9%, and 10% in the first three quarters of 2024, respectively.
The company’s prospects shifted in mid-2024 when, on June 27, Nokia announced its intention to acquire Infinera Corporation (NASDAQ:INFN) for an enterprise value of $2.3 billion, a 28% premium to Infinera’s share price of $6.65 on June 26. The deal is expected to close in the first quarter of 2025, stabilizing the share price around the deal value. This acquisition is mutually beneficial: Infinera Corporation (NASDAQ:INFN) will gain access to significantly greater financial resources, Nokia’s global supply chain, customer base, and better competitive positioning. Nokia will benefit from expanding its networking products for data centers and increasing its exposure to webscale customers, the fastest-growing market segment.
In another development, in October 2024, Infinera Corporation (NASDAQ:INFN) and the U.S. Department of Commerce signed a non-binding agreement to receive up to $93 million in direct funding under the CHIPS & Science Act. This proposed funding, combined with available investment tax credits, could result in over $200 million in total federal incentives, as well as potential state and local incentives.
25. A10 Networks, Inc. (NYSE:ATEN)
Upside Potential: 8%
Number of hedge funds: 20
A10 Networks, Inc. (NYSE:ATEN) offers high-security application solutions designed for on-premises, multi-cloud, and edge-cloud environments, delivering performance at hyperscale levels. The company emphasizes a unified product architecture to achieve lower latency, higher throughput, and greater scalability. Its products are based on its proprietary Advanced Core Operating System (ACOS), which helps it manufacture differentiated products compared to its peers. Additionally, it supports next-generation AI data centers with an AI-ready platform, systems, and solutions.
On January 16, 2025, A10 Networks, Inc. (NYSE:ATEN)’s management presented at the Needham Virtual Growth Conference. Management provided an upbeat outlook, highlighting strong financial performance with a FY 2019 to 2023 revenue CAGR of 3% (versus 2% for comparable peers) and an EPS CAGR of a robust 18%. They expect to drive business value by selling more products to the installed base, prioritizing the creation of a more addressable market over the expansion of existing markets, and driving growth through hybrid solutions. The stock currently trades near its all-time high of $19.63, up around 35% over the past year. In November 2024, the stock was downgraded by Craig-Hallum, and since then, it hasn’t seen much analyst activity.
24. Equinix, Inc. (NASDAQ:EQIX)
Upside Potential: 13%
Number of hedge funds: 55
Equinix, Inc. (NASDAQ:EQIX) is a leading pure-play data center provider and holds the position as the largest third-party data center provider globally, with a significant market share. The company specializes in data centers, colocation, and internet connectivity, offering a neutral platform where networks can interconnect and share data traffic. Equinix operates 268 data centers, spanning 33.4 million gross square feet across 34 countries on all major continents.
Equinix, Inc. (NASDAQ:EQIX) has an impressive financial performance, boasting 87 consecutive quarters of revenue growth across different market cycles. The company’s execution is commendable, with a rapid increase in floor space that should benefit from further cloud adoption and hyperscaler demand. In October 2024, Equinix announced plans to triple their investment capital towards their xScale program by forming a joint venture worth over $15 billion with the Canada Pension Plan Investment Board and Singapore’s Government Investment Corporation. The xScale program’s data center capacity caters to the unique needs of hyperscale companies, providing massive floor space, networking capacity, and increased connectivity speeds to support the high demands of these large-scale operations.
Equinix, Inc. (NASDAQ:EQIX) has also committed to supplying 100% clean and renewable energy coverage, which should give it a competitive advantage given the large and surging energy requirements of data centers.
23. Arista Networks Inc (NYSE:ANET)
Upside Potential: 14%
Number of hedge funds: 70
Arista Networks Inc (NYSE:ANET) provides data-driven, client-to-cloud networking for large data centers, campus, and routing environments. Arista’s platforms deliver availability, agility, automation, analytics, and security through an advanced network operating stack. The company’s offerings are mainly focused on high-speed data center and cloud networking systems, value-add software-defined network solutions, and advanced routing systems for edge routing and data center interconnect (DCI).
The investment case for Arista Networks Inc (NYSE:ANET) is bolstered by its expansive and innovatively evolving product line, a diversified customer base ranging from hyperscalers to government agencies, and a burgeoning addressable market. The company primarily competes in the high-speed data center Ethernet switching markets for 10 Gigabit Ethernet (“GbE”) and above. Supported by rapid growth, it has achieved a leadership position in high-speed Ethernet port shipments of 100G and above and holds the second-largest market share in overall data center Ethernet switch ports and revenue. Arista Networks stands to benefit from the rising demand for digital transformation, AI, increasing hybrid workloads, and Zero Trust Networking Security.
In a testament to its strong positioning, an analyst from Piper Sandler, on January 23, quoted Arista as the most discussed “winner” of Project Stargate among his coverage of stocks due to its substantial exposure to hyperscalers and AI vendors. He estimates Arista Networks Inc (NYSE:ANET) to capture more than 30% share of high-end data center switching, which implies a serviceable available market (SAM) of over $6 billion over five years, or $1.25 billion annually. This makes Arista Networks Inc (NYSE:ANET) a compelling opportunity in the data center space.
22. Digital Realty Trust, Inc. (NYSE:DLR)
Upside Potential: 15%
Number of hedge funds: 52
With over 310 data centers across more than 25 countries, Digital Realty Trust, Inc. (NYSE:DLR) stands as a leading provider of data center, colocation, and interconnection solutions. Its connectivity platforms, ‘PlatformDIGITAL’ and ‘ServiceFabric,’ differentiate it by enabling customers to deploy their critical infrastructure globally, manage capacity, and scale, ensuring seamless connectivity and robust performance. Size-wise, it is the 7th largest publicly traded U.S. REIT, boasting strong future leasing momentum with $1.0 billion in bookings over the last twelve months and $859 million in current backlog (i.e., lease signed but not yet commenced) as of September 2024.
Digital Realty Trust, Inc. (NYSE:DLR) possesses substantial capacity – with an existing capacity of 2,900 MWs and a land bank that could increase total capacity to 6,700 MWs. Given its global presence and scale, the company is well-positioned to benefit from secular trends in AI and hyperscale demand. Supporting this view, on January 15, a Deutsche Bank analyst upgraded Digital Realty Trust, Inc. (NYSE:DLR) to Buy from Hold, raising the price target to $194 from $185. The analyst expects the company’s core funds from operations (FFO) per share growth to accelerate in the coming years.
The analyst noted that higher funding costs due to persistently higher rates are expected to be offset by diversifying funding sources, including equity, joint ventures, and the sale of non-core assets. While premium valuation is cited as a downside risk, Digital Realty Trust, Inc. (NYSE:DLR)’s growth is projected to help it significantly outperform its peers over the long term. A week prior to Deutsche Bank, a UBS analyst also upgraded Digital Realty Trust, Inc. (NYSE:DLR) stock to Buy from Neutral and significantly increased his price target to $205 from $147 previously.
21. Parker-Hannifin Corporation (NYSE:PH)
Upside Potential: 16%
Number of hedge funds: 62
Parker-Hannifin Corporation (NYSE:PH) specializes in manufacturing motion and control technologies and systems. While the company has significant exposure to Aerospace & Defense and other Industrial markets, interconnected technologies for data centers remain a key growth focus. The company has specialized departments for data center cooling applications (liquid cooling systems), providing deep thermal management expertise, engineering capabilities, and experience to deliver customized solutions. Their products, such as fittings, quick couplings, and hoses, are designed to withstand the most demanding data center environments, ensuring enduring reliability and uptime. Parker-Hannifin Corporation (NYSE:PH) actively participates in the Open Compute Project (OCP), a community-driven organization dedicated to standardizing the design and performance of hardware for data centers, from small to hyper-scale.
Parker-Hannifin Corporation’s (NYSE:PH) Chairman and CEO, Jenny Parmentier, has expressed optimism about the growth driven by digitalization and AI, which are increasing the need for semiconductor fabs and data centers. In the latest quarterly earnings call, she attributed growth to the substantial investments flowing into data centers. She believes that mega capex projects, industrial capex investments, and demand associated with semiconductor fabs and data centers will continue to drive long-term growth for the company.
20. COPT Defense Properties (NYSE:CDP)
Upside Potential: 18%
Number of hedge funds: 26
COPT Defense Properties (NYSE:CDP) is a Real Estate Investment Trust (REIT) that owns, manages, leases, develops, and selectively acquires office and data center properties. The majority of its portfolio is located in areas that support the United States Government and its contractors, most of whom are engaged in national security, defense, and IT related activities, servicing what the company believes are growing, durable, priority missions. This significant exposure to government contracts provides the company with resilient demand, stable cash flows, and continuous development opportunities.
COPT Defense Properties (NYSE:CDP) currently operates over 30 data centers, encompassing approximately 6.3 million square feet of space. In December 2024, the company acquired a 365-acre land parcel in Des Moines, Iowa for $32 million. It plans to initiate an advanced data center shell development program (consisting only of finished exterior construction, no fit-outs) for an existing Fortune 100 cloud computing tenant, with around 1.0 GW of planned power capacity and 3.3 million square feet of space. The company already has three data center shells under construction, which will add 643,000 square feet of space.
19. GlobalFoundries Inc. (NASDAQ:GFS)
Upside Potential: 19%
Number of hedge funds: 22
GlobalFoundries Inc. (NASDAQ:GFS) is a U.S.-based semiconductor foundry that manufactures integrated circuits for various markets, including automotive, mobile devices, Internet of Things (IoT), data centers, and communications infrastructure. The company is advantageously positioned within the North American semiconductor ecosystem, especially given recent escalations in chip export restrictions and U.S. efforts to bring production closer to home.
GlobalFoundries Inc. (NASDAQ:GFS) offers a portfolio of differentiated solutions in the data center communications and infrastructure market, addressing bandwidth constraints and maximizing storage efficiency. Its GF Fotonix platform enhances data movement efficiency and reduces power consumption. With the surge in data traffic between the edge and data centers, the company believes its analog expertise is essential to meeting the needs of data center and infrastructure providers.
The company is making substantial investments to significantly enhance its production capacity and advance its technology development efforts within the U.S. In November 2024, the company secured $1.5 billion in government funding under the CHIPS and Science Act, contributing to its broader domestic production expansion plan, totaling $13 billion over the next decade. In mid-January 2025, GlobalFoundries Inc. (NASDAQ:GFS) announced a plan to create an advanced packaging and photonics center within its New York manufacturing facility. The overall investment is expected to be $575 million, with an additional R&D investment of $186 million over the next 10 years.
18. GDS Holdings Limited (NASDAQ:GDS)
Upside Potential: 20%
Number of hedge funds: 32
GDS Holdings Limited (NASDAQ:GDS) provides high-performance carrier-and-cloud-neutral data center and IT infrastructure services in China and Southeast Asia. The company offers colocation services, managed hosting services, managed cloud services, and other value-added services. It serves a diverse customer base, including hyperscale cloud service providers, large internet companies, financial institutions, telecommunications carriers, IT service providers, and large corporations. It is important to note that GDS Holdings Limited (NASDAQ:GDS) is not an operating company in mainland China but instead a Cayman Islands holding company. The company operates most of its business operations in mainland China through consolidated variable interest entities (VIEs) and their subsidiaries.
During its Q3 2024 call, GDS Holdings Limited (NASDAQ:GDS) announced plans to create and IPO a C-REIT, which will hold its stabilized data centers. This REIT is expected to provide the company with an additional funding stream to capitalize on new and lucrative opportunities as AI demand accelerates. On January 24, 2025, UBS reported that the plan had been approved by the Shanghai Stock Exchange, with a potential issue size of over RMB 1.6 billion. The company plans to launch the C-REIT in the second half of 2025.
17. SK Hynix (OTC:HXSCF)
Upside Potential: 22%
Number of hedge funds: N/A
SK Hynix (OTC:HXSCF) is a prominent semiconductor supplier, manufacturing Dynamic Random Access Memory (DRAM) chips, flash memory (NAND flash) chips, and CMOS Image Sensors (CIS) for a diverse array of global customers. These products serve various applications, including smartphones, servers, PCs, and automotive systems. Over the years, the company has fortified its position as a leading memory technology firm with advanced offerings such as High-Bandwidth Memory (HBM) and enterprise SSDs (eSSDs).
Recently, SK Hynix (OTC:HXSCF) announced a collaboration with SK Telecom and Penguin Solutions to spearhead innovation in AI data center solutions. Furthermore, the company launched the PS1012 SSD, a high-capacity SSD designed for AI data centers, which delivers double the data transfer speed of previous generations.
SK Hynix (OTC:HXSCF) also reported its Q4 2024 earnings, showcasing robust top-line growth and profitability driven by rising sales of AI memory products, including HBM and eSSD. The company projects that the demand for HBM and high-density server DRAM will continue to grow, fueled by global big tech companies’ investments in AI servers and the increasing importance of AI inference technology. This positions SK Hynix (OTC:HXSCF) well to benefit from the expanding demand for memory chips, especially as data centers, cloud computing, AI, and big data proliferate. However, management also highlighted delays in demand recovery in consumer markets like smartphones and PCs, which will negatively impact volumes and pricing in 2025. This has led to weaker investor sentiment, affecting both the company’s share price and that of its peers.
16. Radware Ltd. (NASDAQ:RDWR)
Upside Potential: 23%
Number of hedge funds: 17
Radware Ltd. (NASDAQ:RDWR) specializes in cybersecurity and application delivery solutions for physical, cloud, and software-defined data centers. The company provides infrastructure, application, and corporate IT protection and availability services to enterprises globally. Its products, such as Cloud WAF, Bot Manager, DDoS protection, and DefensePro, offer comprehensive security and performance optimization for data centers.
Radware Ltd. (NASDAQ:RDWR) reported a robust set of Q3 2024 earnings results on November 2nd, with revenue surging 13% year-over-year (YoY) to $69.5 million. More importantly, the company is experiencing significant operating leverage, as its adjusted EPS more than tripled YoY to $0.23 from $0.07. Management attributed this success to the ongoing strong traction in the DefensePro X product and reported adding a record number of new cloud customers, leading to a 15% YoY increase in cloud annual recurring revenue (ARR). They also emphasized their commitment to accelerating growth by expanding their channels, enhancing their global cloud security network, further diversifying their cloud security suite, and aligning their organization to support these initiatives.
15. American Tower Corporation (NYSE:AMT)
Upside Potential: 25%
Number of hedge funds: 73
American Tower Corporation (NYSE:AMT) owns, operates, and develops multitenant communications real estate, including towers, distributed antenna systems, and data centers. The company became a significant player in digital infrastructure following its 2021 acquisition of CoreSite Realty Corporation in the U.S. CoreSite is a leading data center REIT, providing colocation and interconnection services with 28 network-dense, cloud-enabled data centers across 11 major markets, totaling approximately 4.6 million square feet. This acquisition has given American Tower Corporation (NYSE:AMT) a substantial competitive advantage, enabling the company to offer more integrated, end-to-end solutions for businesses requiring both wireless infrastructure (through towers and fiber networks it already owned) and data center services.
Data centers constitute around 10% of American Tower Corporation’s (NYSE:AMT) revenue. However, this business grew 10% year-on-year in Q3 2024. In comparison, the revenue from all other business segments combined declined by 1%, highlighting that data centers are bolstering the company’s top-line growth. JMP Securities recently initiated coverage on American Tower Corporation (NYSE:AMT) with a price target of $225, suggesting a robust 17% potential upside.
14. NextDC Limited (OTC:NXDCF)
Upside Potential: 25%
Number of hedge funds: N/A
NextDC Limited (OTC:NXDCF) is a top-tier Australian provider of data center services. The company manages a network of high-performance, scalable data centers in prominent Australian and New Zealand cities. It currently operates 17 data centers with a built capacity of 165 MW. Its offerings primarily cater to large enterprises, cloud service providers, network operators, and other businesses that require mission-critical IT infrastructure. NextDC is well-positioned to capitalize on the ongoing transition to cloud computing, hybrid cloud strategies, and edge computing, all of which are anticipated to drive sustained demand for its data center infrastructure.
Recently, NextDC Limited (OTC:NXDCF) acquired a new data center site in Sydney (S7), which is expected to significantly enhance its regional capacity and capabilities. With a potential capacity of 550 MW, S7 represents a substantial investment in Australia’s digital infrastructure. The company paid around A$353 million for the property and plans to develop it over FY 2025, pending necessary approvals. Considering its current capacity of 165 MW, this expansion is quite substantial and should solidify the company’s competitive positioning.
13. Extreme Networks, Inc. (NASDAQ:EXTR)
Upside Potential: 26%
Number of hedge funds: 29
Extreme Networks, Inc. (NASDAQ:EXTR) delivers cloud-driven networking solutions that provide high-performance connectivity and network management for enterprises, service providers, and public sector organizations. The company also produces network switches, routers, and wireless access points, which are engineered to offer high-speed connectivity, network resilience, and scalability, serving organizations with both on-premises and cloud-based infrastructure. For data centers, Extreme Networks, Inc. (NASDAQ:EXTR) offers a variety of solutions including high-density network switches, data center interconnects, and load balancing solutions that ensure high availability and low-latency connections for mission-critical applications.
Cloud computing, data centers, and enterprise network modernization are projected to drive long-term demand for the company’s networking and infrastructure solutions. Extreme Networks, Inc. (NASDAQ:EXTR) continues to broaden its international reach, particularly in Asia-Pacific and Europe, where the demand for networking and cloud solutions is rapidly growing. In the latest earnings comments, management emphasized a robust growth trajectory in its data center solutions, highlighting high-performance switches and SD-WAN offerings, which have been especially popular among large enterprises and cloud providers.
12. Rackspace Technology, Inc. (NASDAQ:RXT)
Upside Potential: 27%
Number of hedge funds: 13
Rackspace Technology, Inc. (NASDAQ:RXT) provides a comprehensive range of management and support services across private, hybrid, and hyperscale public cloud platforms. Its services include application services, data management, colocation, managed hosting, professional services, and security and compliance. The company operates 40 colocation data centers strategically located in key markets worldwide.
Rackspace Technology, Inc. (NASDAQ:RXT) has been active in recent months. In January 2025, the company made significant changes to its board of directors while maintaining its financial guidance for Q4 2024. In October 2024, Rackspace entered into a Strategic Collaboration Agreement (SCA) with Amazon Web Services (AWS), aiming to provide comprehensive solutions including cloud advisory, financial operations (fin-ops), migration, modernization, cloud data, machine learning (ML), and generative AI services. Prior to this, Rackspace launched the Rackspace Rapid Migration Offer (RRMO), designed to expedite data center migrations to AWS. Through this agreement, Rackspace Technology, Inc. (NASDAQ:RXT) aims to leverage its industry expertise alongside AWS’s advanced technologies to help customers accelerate innovation.
11. Iron Mountain, Inc. (NYSE:IRM)
Upside Potential: 27%
Number of hedge funds: 30
Iron Mountain, Inc. (NYSE:IRM) offers a range of services, including digital transformation, data centers, secure records storage, information management and governance, and asset lifecycle management. The company operates two broad businesses: the Records and Information Management segment, which generates around 80% of its total revenue, and the global Data Center Business, which accounts for approximately 10%, with 26 operating data centers across 21 global markets.
In November 2024, Iron Mountain, Inc. (NYSE:IRM) acquired two data center development sites in Virginia, significantly boosting its planned capacity to support its rapid expansion in the data center market. This acquisition will contribute approximately 350 MW of planned future capacity, bringing the company’s total data center capacity to over 1.2 gigawatts (GW) globally once fully developed.
10. Applied Materials, Inc. (NASDAQ:AMAT)
Upside Potential: 29%
Number of hedge funds: 74
Applied Materials, Inc. (NASDAQ:AMAT) operates as the world’s largest wafer fabrication equipment manufacturer and is a leading provider of materials engineering solutions. The company is a direct beneficiary of advancements in AI and the increasing semiconductor content in connected devices. Leveraging its cutting-edge equipment and materials engineering capabilities, Applied Materials, Inc. (NASDAQ:AMAT) is positioning itself to be at the forefront of technological inflections—significant shifts in wafer processing schemes or device architectures. For instance, the company anticipates its transistor and wiring addressable market to expand from $6 billion to $7 billion due to Gate-All-Around (GAA) and Backside Power Delivery (BPD) inflections.
Applied Materials, Inc. (NASDAQ:AMAT) technologies enable the production of advanced chips, such as memory and logic processors, essential for powering data centers and supporting applications like machine learning, cloud storage, and big data analytics. The company is actively innovating in next-generation semiconductor technologies, including AI chips, memory processing, and quantum computing, which will drive future advancements in data centers. Thus, as a critical enabler of the semiconductor manufacturing process, Applied Materials, Inc. (NASDAQ:AMAT) holds a strong position in the data center market. KeyBanc analyst upgraded their rating on the company to ‘Overweight’ with a price target of $225, emphasizing the company’s focus on materials engineering, advanced packaging, and improved production efficiency.
9. Nutanix, Inc. (NASDAQ:NTNX)
Upside Potential: 32%
Number of hedge funds: 50
Nutanix, Inc. (NASDAQ:NTNX) is a provider of software-defined hyperconverged infrastructure (HCI) platforms that combine computing, storage, networking, and virtualization into a single solution. This platform reduces cloud complexity, enabling businesses to operate applications and manage data seamlessly across public and private clouds, data centers, on-premises, and edge locations.
Nutanix, Inc. (NASDAQ:NTNX) bases its investment case on the secular trends of hybrid multicloud adoption and generative AI. The company has secured a leadership position in the HCI market and estimates a $76 billion total addressable market by FY 2027, providing a substantial runway for business growth. In mid-December 2024, UBS initiated coverage on Nutanix with a Buy rating and a price target of $81, indicating a 29% upside. Around the same time, a Morgan Stanley analyst also named it as a Top Pick with an unchanged Overweight rating but raised the price target to $85 from $78. The positive outlook is based on the view that Nutanix, Inc. (NASDAQ:NTNX) and similar stocks are entering 2025 with healthier budgets, better inventory positions, and improved valuations, following a softer IT spending environment in 2024.
8. Credo Technology Group Holding Ltd (NASDAQ:CRDO)
Upside Potential: 35%
Number of hedge funds: 30
Credo Technology Group Holding Ltd (NASDAQ:CRDO) is a recent addition to the stock market, having gone public in 2022. The company is renowned for providing innovative, secure, high-speed connectivity solutions that enhance power and cost efficiency in the infrastructure market. Their primary products include active electrical cables (AECs), optical digital signal processors (DSPs), line card retimers, SerDes chiplets, and SerDes IP licenses, all of which enable high-speed connectivity within data centers.
Credo Technology Group Holding Ltd (NASDAQ:CRDO)’s management believes that AI cluster architectures are rapidly evolving due to advancements in processing, cooling, and power sourcing. These advancements are making clusters increasingly dense and scalable, creating significant opportunities for high-speed connectivity solutions to prevent service disruptions. Management has anticipated an ‘inflection point’ in its revenue and business momentum for several quarters and announced reaching this milestone in the second quarter of 2025, which led to a strong rally in the share price in 2024. The CEO highlighted:
“While we’re proud of our achievements, we are also optimistic about the future of our AEC business. We believe that we are still in the early stages of widespread market adoption and we are well positioned as the market leader. AI driven demand for high-speed power efficient and reliable connectivity is accelerating. I am pleased to share that the turning point has arrived, and we are experiencing even greater demand than initially projected.”
The stock received a number of rating and target price upgrades following strong Q3 earnings and positive management commentary. Immediately after the December results announcement, a Bank of America analyst double upgraded Credo Technology Group Holding Ltd (NASDAQ:CRDO) stock from Underperform to Buy. The analyst’s positive investment thesis is based on the company’s transition towards a more profitable earnings growth model and the multi-year adoption cycle for its AEC product. However, he also highlighted the stock’s premium valuation and intensifying competition in the AEC market as potential risks to the upside. The stock has surged by an impressive 274% since January 2024 (as per closing prices on January 26th, 2025), leading to a cautious market outlook on further upside.
7. CommScope Holding Company, Inc. (NASDAQ:COMM)
Upside Potential: 35%
Number of hedge funds: 38
CommScope Holding Company, Inc. (NASDAQ:COMM) provides infrastructure solutions for communication, data centers, and entertainment networks. The company supports a wide range of data center requirements and offers a variety of solutions, including optical fiber and twisted pair structured cabling, intelligent infrastructure management hardware/software, and network rack and cabinet enclosures. Its Connectivity and Cable Solutions (CCS) division accounts for approximately 50% of total revenue. In the third quarter of 2024, this segment reported revenue of $737 million, a 17% year-on-year growth, with EBITDA increasing by 115%, driven by cloud and hyperscale data center growth, including GenAI projects.
During the third quarter 2024 conference call, management emphasized that their capacity investments have significantly contributed to EBITDA growth, and they plan to continue investing to further expand capacity in response to the strong demand from the hyperscale and cloud data center sectors. As part of the CommScope NEXT program, CommScope Holding Company, Inc. (NASDAQ:COMM) sold its Outdoor Wireless Networks (OWN) segment and Distributed Antenna Systems (DAS) in June 2024 for $2.1 billion, with the deal expected to close in the first quarter of 2025. Additionally, the company has raised $3.15 billion through debt to repay upcoming maturities and provide ample capital for future growth investments.
6. Coherent Corp. (NYSE:COHR)
Upside Potential: 38%
Number of hedge funds: 51
Coherent Corp. (NYSE:COHR) is a developer and manufacturer of engineered materials, networking products, optoelectronic components, and optical and laser systems for the industrial, communications, electronics, and instrumentation markets. The company holds a strong position in the optical communications market, particularly with its innovative solutions for data centers, such as datacom optical transceivers.
In March 2024, Coherent Corp. introduced its Optical Circuit Switch (OCS), specifically designed for AI data center deployments. This innovation aims to reduce the number of electrical switches required, thereby cutting costs and power consumption. On January 25, 2025, a Barclays analyst raised the price target for Coherent Corp. (NYSE:COHR) to $125 from $105 and reiterated his Overweight rating.
5. Vertiv Holdings Co (NYSE:VRT)
Upside Potential: 42%
Number of hedge funds: 91
Next on the list is Vertiv Holdings Co (NYSE:VRT), a standout performer in 2024 with its stock price tripling since the start of January. The reason for this impressive growth is the company’s strong positioning in the expanding data center and critical infrastructure market. Vertiv offers a wide range of products, including critical power systems, thermal management (mainly cooling) products, racks and enclosures, and other IT infrastructure solutions and services.
Vertiv Holdings Co (NYSE:VRT) is the global leader in data center thermal management and power switching and distribution. The company derives 80% of its total revenues from the Data Center segment, with thermal and power management products accounting for 64% of total revenue. In their Q3 2024 earnings results, Vertiv’s CEO highlighted the company’s strength in meeting underlying demand and its unique market positioning:
“We are very encouraged by the acceleration of liquid cooling revenue, which is a visible contributor to our third quarter results, despite an immature market. Pipelines continue to grow. There are clear indications of an acceleration in AI development that is truly encouraging, and which is driving demand across our entire AI-enabling portfolio of power, thermal, IT systems, infrastructure solutions and services.”
We believe Vertiv Holdings Co (NYSE:VRT) has an impressive growth plan for the next decade, which should help it maintain its leadership position. In their last investor presentation, they projected revenue to reach $14.4 billion in 2029, up from around $7.8 billion in 2024, reflecting a solid CAGR of 12%-14%. Additionally, they expect margins to expand to approximately 25% from 19%, leading to strong free cash flows.
4. Dell Technologies Inc. (NYSE:DELL)
Upside Potential: 49%
Number of hedge funds: 60
Dell Technologies Inc. (NYSE:DELL) is a key player in IT infrastructure modernization, artificial intelligence (AI), software-defined, and cloud-native infrastructure solutions. The company offers a wide array of products and services, including personal computers, servers, storage solutions, networking, software, and information security. When it comes to data centers, Dell provides an extensive range of products and services that address both traditional and emerging needs, such as servers, storage systems, hyperconverged infrastructure (HCI), cloud computing solutions, server racks and enclosures, modular data centers, and networking equipment. This comprehensive portfolio positions Dell Technologies Inc. (NYSE:DELL) well to leverage growth in the data center industry.
Dell Technologies Inc. (NYSE:DELL)’s Servers & Networking revenue grew a solid 58% year-on-year in Q3 2025 (November 2024), outpacing all other businesses by a significant margin. Encouraged by the strong results, Jeff Clarke, COO at DELL said that the interest in DELL’s portfolio is at an all-time high, driving record AI server orders demand of $3.6 billion in Q3 and a pipeline that grew more than 50%, with growth across all customer types.
In early January 2025, UBS named Dell Technologies Inc. (NYSE:DELL) as their top large-cap pick in Enterprise Hardware and Networking coverage in the US. UBS currently rates it as a BUY with a price target of $158.
3. Microchip Technology, Inc. (NASDAQ:MCHP)
Upside Potential: 52%
Number of hedge funds: 37
Microchip Technology, Inc. (NASDAQ:MCHP) manufactures embedded control solutions, including microcontrollers, mixed-signal, analog, and Flash-IP integrated circuits. The company earns approximately 18%-20% of its revenue from the Data Center & Computing end market. It offers a comprehensive portfolio of data center solutions that improve server storage performance, reliability, and security while also reducing overall power consumption. These solutions include Flashtec NVMe controllers, 24G SAS technology-based SmartRoc products for storage, and PCIe Gen 5 technology products for high bandwidth and flexibility in data centers.
Microchip Technology, Inc. (NASDAQ:MCHP) will report its next quarter results on February 6th. However, one of its closest peers has already reported weaker quarterly results and provided softer next-quarter guidance amid rising inventory levels and softening demand in critical end markets. This has made investors cautious about Microchip Technology, Inc. (NASDAQ:MCHP) as well. Its share price has fallen around 35% in the past year, and most analysts have revised their price targets lower in recent updates. Given the cyclical nature of the semiconductor industry, demand/supply volatility is part of the cycle and can impact near-term investor sentiment.
At the start of December 2024, Microchip Technology, Inc. (NASDAQ:MCHP) announced a restructuring plan and updated its guidance in light of the excess inventory and overcapacity situation. While they now expect December 2024 quarter revenue to be at the lower end of their guidance, they also announced the closure of their Tempe wafer fabrication facility (fab) by September 2025. Although this will result in $90 million in annual cash savings, the development is overall negative for the near-term outlook due to the pressure on the business and the time it takes to ramp up capacity during recovery periods. Commenting on the restructuring, the company’s CEO, Mr. Steve Sanghi, stated:
“I want to assure investors of my confidence in the long-term growth and profitability of Microchip. Our design-in momentum continues to remain strong, driven by our Total System Solutions strategy and key market megatrends. The fab restructuring is a big step in right-sizing our manufacturing footprint, and we will continue to evaluate any further actions that are required to position Microchip for outsized growth and financial performance.”
2. Micron Technology, Inc. (NASDAQ:MU)
Upside Potential: 59%
Number of hedge funds: 107
Micron Technology, Inc. (NASDAQ:MU) designs, develops, manufactures, and markets memory and storage products, including dynamic random-access memory (DRAM), flash memory (NAND), solid-state drives (SSDs), and High Bandwidth Memory (HBM) globally. The company is well-positioned to capitalize on technological advancements in AI, 5G, autonomous vehicles, and data centers.
Micron Technology, Inc. (NASDAQ:MU)’s HBM chips are particularly designed to handle data-intensive workloads in data center servers, AI applications, and high-performance computing. The company has positioned its HBM products as a key growth driver, anticipating the total addressable market (TAM) for HBM to expand fourfold by 2028, from $16 billion in 2024 to over $100 billion by 2030. The company’s management has reported significant traction for HBM chips, with HBM revenue doubling sequentially in its latest quarter. Buoyed by this success, Micron Technology, Inc. (NASDAQ:MU) has announced a $7.0 billion investment in a new HBM advanced packaging facility, to be located adjacent to its existing facilities in Singapore and expected to be operational by 2026.
Additionally, a report from Berstein analysts suggests that Micron Technology, Inc. (NASDAQ:MU) and Samsung could gain an advantage from the new US export rules, as these regulations will further impact Chinese competitors. The US has tightened the rules for certain memory chips, reducing the allowed size from 1z to 18nm, which will render older technologies ineffective and give firms like Micron Technology, Inc. (NASDAQ:MU) and Samsung a competitive edge.
1. Applied Digital Corp. (NASDAQ:APLD)
Upside Potential: 70%
Number of hedge funds: 26
Applied Digital Corp. (NASDAQ:APLD) tops our list with a 70% upside after China’s DeepSeek triggered selloff. The company is a niche player in the data center space, engaged in designing, developing, and operating cutting-edge digital infrastructure throughout North America. Originally a crypto miner, the company terminated mining operations in March 2022 and transitioned to offering digital infrastructure solutions and cloud services to the fast-growing sectors of High-Performance Computing (HPC) and AI.
For the fiscal year ended May 2024, Applied Digital Corp. (NASDAQ:APLD) generated the majority of its revenue (~85%) from its Data Center Hosting (DCH) business, which provides infrastructure services to crypto mining customers, allowing them to rent space based on their power requirements. During the same period, its Cloud Services (CS) business, which provides high-performance computing power for AI and ML applications, commanded 17% of total revenue. By Q2 2025 (November 2024), the revenue mix had substantially improved, with CS revenue witnessing a 523% year-on-year growth.
In addition to these established businesses, Applied Digital Corp. (NASDAQ:APLD) is ramping up its HPC Data Center Hosting business, aimed at designing, building, and operating next-generation data centers for hyperscalers. The company already has a 100 MW HPC facility under construction in Ellendale, North Dakota. To support its growth initiatives, Applied Digital entered into a partnership with Macquarie Asset Management for funding of up to $5.0 billion to support the full 400 MW build-out of the Ellendale HPC Campus.
This is a significant step in Applied Digital Corp. (NASDAQ:APLD)’s growth trajectory, as highlighted by Wes Cummins, Chairman and CEO of Applied Digital:
“We believe this expanded relationship with MAM positions Applied Digital for significant growth in the industry, establishing Applied Digital as one of the fastest-growing HPC data center owners, operators and developers in the United States. At today’s build costs, we will have a significant portion of the equity needed to construct over 2.0 GW of HPC data center capacity, including our Ellendale HPC Campus.”
While we acknowledge the potential of APLD to grow, our conviction lies in the belief that 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 APLD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
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