We recently compiled a list of the 10 Best AI Data Center Stocks. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other 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.
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).
A development team working together to create the next version of Windows.
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.
Overall MSFT ranks 2nd on our list of the best AI data center stocks to buy. While we acknowledge the potential of MSFT 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
