The emergence of AI has driven demand for data center stocks, ushering in a new technological revolution. Despite economic uncertainty, stubborn core inflation, a slowing labor market, and weakening consumer confidence, the massive investment into AI and data centers has powered equity markets higher. Find out about the best data center stocks to buy now and hold through the boom cycle.
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What are Data Center Stocks?
Data center stocks refer to publicly listed companies that are actively involved in building and operating data centers. These companies are active in construction, power generation, thermal management, and data center operations. There are power-hungry, massive, warehouse-like buildings that house servers and related technology powering AI, the internet, and everything in the cloud.
Why Should You Consider Investing in Data Center Stocks?
Data centers are not a new investment phenomenon, as the internet requires them to operate. The breakthrough in AI adoption in 2022 created a demand boost, as hyperscalers require massive data centers for AI-related operations. The data center market is on track to exceed $600 billion by the end of 2030, as part of the multi-trillion AI sector, with annualized double-digit growth rates.
Here are a few things to consider when evaluating data center stocks:
Research data center stocks with revenue growth over the past three years.
Diversify your data center portfolio with companies that construct data centers, provide thermal management, and server components.
Mix your data center stock portfolio with companies involved in electricity generation.
Analyze the balance sheet and avoid high-debt data center stocks.
Check the Power Utilization Effectiveness (PUE), a core indicator of how efficiently the data center operates, together with occupancy rates.
What are the Downsides of Data Center Stocks?
The data center segment is highly competitive and requires massive capital expenditures to ensure servers run with the most cutting-edge technology. Energy availability is another significant factor, with some hyperscalers preferring colocation rather than relying on the energy provider. The AI hype has spiked valuations, which is adding to downside risks. The AI boom will eventually slow down, technological breakthroughs could result in lower data center demand than currently planned, and rising electricity costs could threaten capital expenditure plans.
Here is a shortlist of data center stocks to consider:
Vertiv Holdings (VRT)
BitFuFu Inc. (FUFU)
Equinix (EQIX)
Cipher Digital Inc. (CIFR)
Global X Data Center & Digital Infrastructure ETF (DTCR)
An update on our previous best data center stocks to buy now
In my previous installment, I highlighted the upside potential of TE Connectivity and Motorola Solutions.
TE Connectivity (NYSE:TEL) - A long position in TEL between $212.04 and $217.73
TEL is down roughly 1% since I bought it, and I will maintain my position, as the bullish factors remain in place.
Motorola Solutions (NYSE:MSI) - A long position in MSI between $434.13 and $444.59
MSI plunged following its earnings report, and my stop loss triggered at $412.00, resulting in a loss slightly less than 5%.
Vertiv Holdings (NYSE:VRT) Fundamental Analysis
Vertiv Holdings (NYSE:VRT) manufactures and provides critical infrastructure and services for data centers, communication networks, and commercial and industrial environments. Active in over 40 countries, with regional headquarters in Switzerland, China, Singapore, Australia, and India. VRT maintains 24 manufacturing and assembly facilities and employs over 30,000. Vertiv Holdings is also a member of the Russell 1000 Index.
So, why am I bullish on Vertiv Holdings amid its recent correction?
The record $15+ billion backlog, driven by high-density AI rack deployments at hyperscalers using VRT’s liquid-cooling and power systems, and ongoing margin expansion, which reached nearly 21% in its latest quarter, forms the core of my buy-the-dip approach. The acquisition of Thermal Labs strengthened its liquid cooling capabilities, and the upgraded full-year net sales guidance adds a bullish catalyst.
Metric | Value | Verdict |
P/E Ratio | 81.86 | Bearish |
P/B Ratio | 29.63 | Bearish |
PEG Ratio | 1.64 | Bullish |
Current Ratio | 1.49 | Bearish |
Return on Assets | 11.15% | Bullish |
Return on Equity | 45.10% | Bullish |
Profit Margin | 14.37% | Bullish |
ROIC-WACC Ratio | Positive | Bullish |
Dividend Yield | 0.08% | Bearish |
Vertiv Holdings Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 81.86 makes Vertiv Holdings an expensive stock. By comparison, the P/E ratio for the NASDAQ 100 Index is 35.89.
The average analyst price target for Vertiv Holdings is $377.21. This suggests good upside potential with manageable downside risks.
Vertiv Holdings Technical Analysis
Vertiv Holdings Price Chart
The Vertiv Holdings D1 chart shows price action between its ascending 0.0% and 38.2% Fibonacci Retracement Fan levels.
It also shows Vertiv Holdings inside a bullish price channel.
The Bull Bear Power Indicator is bearish with an ascending trendline, approaching a bullish crossover.
My Vertiv Holdings Long Stock Trade
VRT Entry Level: Between $324.00 and $339.73
VRT Take Profit: Between $409.94 and $422.24
VRT Stop Loss: Between $282.05 and $293.88
Risk/Reward Ratio: 2.05
BitFuFu (NASDAQ:FUFU) Fundamental Analysis
BitFuFu (NASDAQ:FUFU) is a Bitcoin miner and mining services innovator that operates massive data centers. It has proprietary software for real-time optimization of power usage, and a growing global network of high-performance data centers.
So, why am I bullish on BitFuFu ahead of its earnings release?
BitFuFu’s $20.4 million acquisition of a 51 MW operational data center in Oklahoma, running air-cooled infrastructure at a low electricity cost of $0.03/kWh, and its 80 MW mining facility in Ethiopia, which presents a tremendous revenue generator. It plans to expand total capacity to 1 GW this year, which it could rent to AI-centric companies to diversify away from its low-cost BTC mining. I am also bullish on its focus on optimizing operations for efficiency, while its 1,794 BTC treasury provides a capital buffer.
Metric | Value | Verdict |
P/E Ratio | 4.14 | Bullish |
P/B Ratio | 2.36 | Bullish |
PEG Ratio | Unavailable | Bearish |
Current Ratio | 3.30 | Bullish |
Return on Assets | 2.14% | Bullish |
Return on Equity | -19.96% | Bearish |
Profit Margin | -6.54% | Bearish |
ROIC-WACC Ratio | Negative | Bearish |
Dividend Yield | 0.0% | Bearish |
BitFuFu Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 4.14 makes BitFuFu an inexpensive stock. By comparison, the P/E ratio for the NASDAQ 100 Index is 35.89.
The average analyst price target for BitFuFu is $4.17. This suggests excellent upside potential with fading downside risks.
BitFuFu Technical Analysis
BitFuFu Price Chart
The BitFuFu D1 chart shows price action between its descending 50.0% and 61.8% Fibonacci Retracement Fan levels.
It also shows BitFuFu bouncing off a horizontal support zone.
The Bull Bear Power Indicator remains bearish with an ascending trendline, nearing a bullish crossover.
My BitFuFu Long Stock Trade
FUFU Entry Level: Between $1.97 and $2.08
FUFU Take Profit: Between $3.34 and $3.47
FUFU Stop Loss: Between $1.44 and $1.51
Risk/Reward Ratio: 2.59
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