In this article, we present to you the 10 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.
Carol Gauthier/Shutterstock.com
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.”
5. GDS Holdings LTD (NASDAQ:GDS)
No of HFs: 47
Total Value of HF Holdings: $2.7 Billion
GDS Holdings LTD is a data center holding firm from China. The company markets colocation and managed services, as well as direct private connections to major public cloud platforms. During the third quarter of 2020, GDS reported a net revenue increase of 43% year-over-year to $224.6 million.
In an article, Brown Asset Fund mentioned GDS represents a compelling opportunity.
“In the most recent quarter, we acquired shares of GDS Holdings Limited, the leading data center developer and operator in China serving the premier Chinese cloud service, e-commerce, social media/gaming, and internet players. Although we have not invested in many foreign-based companies, we believe that GDS represents a compelling opportunity. Its business shares many similarities with Equinix, Inc., a U.S.- based data center operator that has been a profitable long-term investment for the Fund. In addition, our real estate research team has met extensively with GDS management over the course of the last few years and has built increased confidence in the team’s growth aspirations and its ability to successfully execute them.
Copyright: ralwel / 123RF Stock Photo
4. American Tower Corp (NYSE:AMT)
No of HFs: 62
Total Value of HF Holdings: $4.6 Billion
American Tower Corp is a global manufacturer of wireless communications infrastructure and next-generation wireless technologies. In the Fortune 500, the company was ranked 410th. During the third quarter of 2020, the company reported a revenue of $2.01 billion, a 3% increase year-over-year.
In an article, we mentioned RicerPark Advisors, LLC’s comments on AMT,
“American Tower: AMT shares were a top detractor on mixed second quarter results and management’s lowered full year revenue and EBITDA guidance (the company did, however, increase its AFFO/share guidance). The company guided to slower-than-expected U.S. property revenue growth due to a push-out of T-Mobile/Sprint capital spending. We believe U.S. activity should reaccelerate in the second half of this year, driven by T-Mobile/Sprint restarting capital spending, and into 2021, with Dish starting to ramp.”
In a separate article, Qualivian Investment Partners also mentioned had a few comments on the stock
“American Tower: AMT was the only slightly negative contributor to the fund’s performance in the third quarter. However, when it reported Q3 results in October, AMT bested revenue, EBITDA, and AFFO estimates in the quarter, while seeing an improving revenue growth trajectory in its international business, which has been one of the key tenets of our investment thesis in AMT. As key international markets continue to mature and densify their networks, the company should see accelerating revenue, EBITDA and operating cash growth from its portfolio of international towers. The company offered limited color on 2021 expectations, but management did say it expects T-Mobile (TMUS) to drive higher U.S. activity y/y predominantly from its 2.5GHz overlay, and that the timing of its Sprint site decommissioning might be more back-end weighted. We will monitor how much of an impact the Sprint tower sites churn might impact US revenues in the 2022-2024 timeframe, however, we expect the underlying growth in wireless data at 30%+ per year, plus the improving contribution from AMT’s international portfolio of towers in key growth emerging markets, will allow the company to continue to put up low to mid-teens growth over our investment horizon.”
3. Advanced Micro Devices (NASDAQ:AMD)
No of HFs: 71
Total Value of HF Holdings: $5 Billion
Advanced Micro Devices is an American multinational semiconductor company that manufactures computer processors and related technologies for business and consumer markets. The company is a major supplier of microprocessors. During the third quarter of 2020, AMD announced a revenue of $2.08 billion.
The top hedge fund holder of this stock is D.E. Shaw’s D E Shaw which had $1.049 billion invested in the stock at the end of September.
2. (NASDAQ:MU)
No of HFs: 79
Total Value of HF Holdings: $4.5 Billion
Micron Technology Inc is an American manufacturer of computer memory and computer data storage including dynamic random-access memory, flash memory, and USB flash drives. During the third quarter of 2020, the company reported a revenue of $5.44 billion versus $4.80 billion for the prior quarter.
Bonsai Partners highlighted a few stocks and MU was one of them. Check out this article, where they mentioned that MU’s share price is quite attractive
If there’s one investment mistake I’ve made multiple times in my career it’s accepting lower quality businesses available at attractive prices. I hope I’m not repeating this mistake again with Micron.
Acquiring a low-quality business at a great price usually does not lead to great investment returns, but neither does a great business at a low-quality price. You have to have both to earn superior returns.
I view Micron’s share price is quite attractive, but I also believe the business is transitioning from being mediocre to rather good. If that happens, attractive returns should follow.
Historically, Micron has not been kind to shareholders, and its shares are currently priced to reflect this. However, I believe that the nature of the DRAM industry has structurally changed for the better.
From a high-level, what makes Micron attractive is how essential it is to human progress. Without getting too professorial, humanity has had multiple waves of productivity gains over the past 12,000 years.
The first big improvement in productivity came from the agricultural revolution, which allowed humans to shift from hunting and gathering into high productivity farming and the division of labor.
1. Nvidia Corporation (NASDAQ:NVDA)
No of HFs: 82
Total Value of HF Holdings: $7.6 Billion
The number one best data center stock to buy now is Nvidia Corporation. The company is an American multinational technology company that manufactures graphics processing units for the gaming and professional markets. They also produce system-on-chip units (SoCs) for the mobile computing and automotive market.
In an article, we mentioned Wedge Partners’ comments on NVDA
“We sold our position in NVIDIA Corp to fund the purchase of First Republic Bank during the quarter. NVIDIA has blown past previous peak valuation multiples as demand for its gaming and datacenter graphical processing units (GPU) have soared due to a new product cycle, as well as easy comparisons to slow 2019 sales. Earlier this year, the Company launched its new Ampere line of GPUs. Hypercloud customers such as Amazon AWS, Google Cloud, and Microsoft Azure have been quick to deploy the new “A100” chips as thousands of artificial intelligence/machine learning (AI/ML)-focused startups, enterprises, and research institutes demand more parallel processing power to run larger AI/ML models. Over the past decade, NVIDIA has developed a substantial library of software to help developers more easily utilize NVIDIA GPUs for industry-specific and domain-specific applications, ensuring limited competition from accelerated computing chip rivals. However, despite these notable achievements, NVIDIA’s datacenter end-market is quite concentrated around a handful of very large hypercloud customers that have quickly changed their buying patterns in the past – and no doubt will in the future. We estimate the market is assuming around a +25% compounded annual growth rate of NVIDIA’s revenue for the next five years, along with aggressive margin expansion. While that outcome is not impossible, we expect the path to that kind of growth will not be linear and that the market will rerate the stock lower, similar to previous cycles, if growth decelerates in its datacenter GPU franchise. NVIDIA has also enjoyed a significant boost in demand for gaming GPUs; because stay-at-home orders are conducive to increased gaming consumption. Coupled with a recent product launch, NVIDIA’s gaming unit should see robust demand for several more quarters. Unlike previous cycles, we think NVIDIA should have limited exposure to any kind of correction in bitcoin mining. NVIDIA continues to be an excellent business, with enviable market positioning and is benefitting from secular demand for compute acceleration in datacenters. However, key to our sell decision, we believe the market has discounted much of NVIDIA’s potential in the stock’s current huge valuation and would rather invest in less well-understood opportunities that have similarly dominant franchises but exhibit more attractive valuations.”
And in a separate article, we mentioned Wedgewood Partner’s 2019 Thesis,
“NVIDIA is a pioneer in the development of the graphics processing unit (GPU) – a semiconductor traditionally utilized for rendering computer graphics – and has extended the GPU beyond the graphics domain into “general purpose computing.” We attribute NVIDIA’s success in general purpose computing to their proprietary computing platform and programming model, known as CUDA.
NVIDIA’s compute acceleration platform forms the backbone of a unique value proposition for steadily emerging compute-intensive applications, such as image processing, natural language processing, assisted driving, and ray tracing (the latter relates to the video game domain). The central processing unit (CPU) has been the workhorse of general-purpose computing for decades, as reliable, almost annual efficiency gains helped drive the development of increasingly complex computing applications. As those CPU efficiency gains have slowed over the past several years, developers have begun utilizing GPUs to accelerate applications. While a CPU usually has between a couple and a few dozen cores that are very fast at computation, that contrasts with a CUDA-based NVIDIA GPU that breaks a computation down across hundreds or even thousands of cores and completes it in a fraction of the time. Yet similar to CPUs, and much like Intel’s x86 standard, virtually any industry application can utilize NVIDIA’s GPUs to accelerate performance, thanks to CUDA’s programmability and rich library of software that has been developed for more than a decade.
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This article is originally published at Insider Monkey.