In this article, we present to you the 10 Best Data Center Stocks to Buy Now. If you’re in a hurry you can skip ahead to the 5 Best Data Center Stocks to Buy Now.
A data center is a dedicated space that is used to house computer systems and associated components such as telecommunications and storage systems. Data centers are also defined as a vast volume of data that is stored, backed up, and recovered. In a recent article, we mentioned the 15 largest data center companies in the world based on annual revenue and number of employees.
Data centers have become increasingly important in our digital lives and COVID-19 has only accelerated this long-term trend. Prior to the pandemic, the data center industry has already proved its global importance. During 2018, the global revenue from the wholesale and retail data center colocation market amounted to $38 billion.
During the pandemic, the US bandwidth consumption within business hours went up by 41%. Microsoft saw a 775% increase in the use of cloud services in Italy and a robust increase in regions that have enforced social distancing and lockdown orders even Zoom reached more than 200 million daily meeting participants.
Post-pandemic, the data center market is expected to grow as investment in cloud computing services and applications continue to improve rapidly. In the U.S. market alone, the data center market is expected to reach a revenue of over $69 billion by 2024. A recent press release explained the main drivers of this growth:
Increasing generation of data has raised the demand for data centers globally. It is estimated that the global data center IP traffic will reach 20.6 Zettabytes by the end of 2021, up from 6.8 Zettabytes per year in 2016, according to the Cisco Systems. The single largest driver of such expansion in the data center capacity is the demand generated by the cloud services providers and the IT industry. It is estimated that there is an increase of 35% in data generated every year, globally, which has resulted in many organizations, doubling their on-premises storage over a three-year period interval.
As a result of the increasing demand for the need of digital support, the Biden Administration will expand broadband or wireless broadband via 5G to every American where he will invest $20 billion in rural broadband infrastructure.
Digital infrastructure continues to develop as we gear towards future economic growth. Recently, China announced a $1.4 trillion stimulus package shifting from traditional infrastructure to new infrastructure for the digital age where they will focus on data centers, 5G and alike. Today they are known to have one of the world’s largest economies with a GDP (PPP) of $25.27 trillion. In an article, we mentioned the 12 Best Infrastructure Stocks to Buy Now.
In order to identify the 10 best data center stocks to buy now, we started with the 25 holdings in the Global X Data Center REITs & Digital Infrastructure ETF (VPN) as of December 18, 2020, and we were able to narrow down our list to the 10 best data center stocks to buy now by using the hedge fund sentiment scores. We believe Amazon.com (AMZN) also belongs to the list of the 10 best center data stocks because its data centers and AWS division power a large chunk of the internet (including our website Insider Monkey), but Global X’s ETF doesn’t have a position in AMZN probably because it isn’t a “pure play” data center play. That’s why you won’t see AMZN in our rankings. Otherwise AMZN would have ranked #1 in our list.
So why did we use the sentiment scores for hedge funds as the primary criteria to assess the best stocks of climate change to buy now? Our in-house research reveals that by using the hedge fund sentiment data, we can identify a small group of stocks that can outperform the S&P 500 index on average by double digits annually. For instance, the portfolio for stock picks for our monthly newsletter has beaten the market by over 78 percentage points since March 2017 (see the details here). Some of the portfolio choices for our monthly newsletter were also publicly shared by us. In October, we posted this real estate stock idea and since then it’s been up more than 50 percent.
Based on our hedge fund sentiment data, we present to you, the 10 best data center Stocks to buy now among 800+ hedge funds tracked by Insider Monkey:
10. Microchip Technology, Inc. (NASDAQ:MCHP)
No of HFs: 35
Total Value of HF Holdings: $629 Million
We start the list of best data center stocks to buy now with Microchip Technology, Inc., they are an American Corporation with corporate headquarters located in Chandler, Arizona. The company produces microcontroller, mixed-signal, analog, and Flash-IP integrated circuits. During the third quarter of the fiscal year 2020, the company reported net sales of $1.287 billion.
Should value investors buy Microchip Technology? In an article, Amana Mutual Funds highlighted this stock where they mentioned that signs have been positive.
“We believe a strong period of semiconductor demand will arrive in the new decade supporting Microchip and Taiwan Semiconductor. Whether the rally starts in 2020 or 2021 remains to be seen but recent signs have been positive.”
In a separate article, Amana Mutual Funds Trust mentioned that the stock was not immune from the virus,
“We see all of the Industrials as being negatively affected, rather than perceiving any major differences in vulnerability to the virus. Nor does being in the Technology sector help if you are making hardware, like semiconductor chips, as opposed to software. Microchip and Taiwan Semiconductor were not immune.”
9. Western Digital Corporation (NASDAQ:WDC)
No of HFs: 39
Total Value of HF Holdings: $641 Million
Western Digital Corporation is more commonly known as simply Western Digital. They are an American computer hard disk drive manufacturer and data storage company that designs and markets data technology products including data center systems and cloud storage services. Some of their products include Internal HDD, Internal SSD, and commercial internal drives. During the third quarter of 2020, WDC reported revenue of $4.2 billion, up 14% year-over-year.
The top hedge fund holder of this stock is Andrew Wellington and Jeff Keswin’s Lyrical Asset Management, which had over $153 million, invested in the stock at the end of September.
8. Crown Castle International Corp (NYSE:CCI)
No of HFs: 42
Total Value of HF Holdings: $2.1 Billion
Crown Castle International Corporation is one of the nation’s largest providers of communications infrastructure in the United States. The company owns, operates and leases more than 40,000 cell towers and approximately, 80,000 route miles of fiber supporting small cells across every major U.S. market. During the third quarter of 2020, CCI reported a net income of $163 million compared to $242 million during the same period of 2019.
Recently the company announced the appointment of Kevin A. Stephens, former Executive Vice President and President of Business Services for Altice USA as an independent director in its Board of Directors. J. Landis Martin, Chairman of Crown Castle Board of Directors mentioned his excitement to have Kevin on board,
“We are very pleased to welcome Kevin to the Board and look forward to the contributions he will make as a member of our Board. Crown Castle will benefit greatly from Kevin’s extensive experience in the fiber and telecommunications industry as we continue to scale our fiber operations and invest in assets that will help support the development of nationwide 5G networks.”
7. Equinix Inc (NASDAQ:EQIX)
No of HFs: 42
Total Value of HF Holdings: $2.2 Billion
Equinix Inc is one of the world’s digital infrastructure company with headquarters located in Redwood, California. The company’s objective is to be the interconnection platform for the world’s leading businesses. During the third quarter of 2020, EQIX reported total revenue of $1.52 billion.
In an article, we mentioned why Baron Asset Fund likes EQIX,
“Equinix, Inc. is a real estate investment trust that operates network-dense, carrier-neutral colocation data centers. The stock contributed to performance after reporting robust quarterly metrics related to new customer bookings. Like SBA, Equinix’s business, which somewhat tracks the overall growth in internet usage, should be relatively unimpacted by near-term economic disruption. We retain conviction in our investment because of the ongoing growth of internet traffic, cloud adoption, and IT outsourcing; and Equinix’s relatively unique position as one of the few operators offering customers a connected global data center platform.”
6. SBA Communications Corporation (NASDAQ:SBAC)
No of HFs: 43
Total Value of HF Holdings: $1.7 Billion
SBA Communications is a real estate investment trust which owns and operates wireless infrastructure. Their products include small cells, indoor and outdoor antenna systems, and alike. During the third quarter, the company reported a net income of $22.6 million or $0.20 per share.
In an article, Brown Asset Fund mentioned that SBAC contributed to performance.
“SBA Communications Corp., which owns and operates towers for wireless communications, contributed to performance because of its continued organic growth and its relative immunity from COVID-19 related economic disruption. In addition, the merger of two large wireless carriers, Sprint and T-Mobile, was upheld by the courts. This removed uncertainty around the pace at which the combined entity will invest in infrastructure to upgrade its network, benefiting SBA. We retain conviction in our investment because of the ongoing growth in demand for wireless voice, data, and video; the company’s strong competitive position; and its consistent ability to return capital to shareholders through share buybacks and a recently instituted dividend.”
In a separate article, we mentioned Brown Advisory’s long-term lease agreements translating to stable revenue.
“Mobile cell tower company SBA Communications has long-term lease agreements with carriers which translate to a very stable revenue pattern even in times of economic dislocation.”
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Disclosure: No positions. 10 Best Data Center Stocks To Buy Now is originally published at Insider Monkey.