In this piece, we will take a look at the 12 best data center stocks to buy according to analysts. If you want to skip our coverage of the data center industry, which is one of the hottest in the world right now, then you can skip ahead to take a look at the 5 Best Data Center Stocks To Buy According to Analysts.
The stock market of 2024 is vastly different from what investors were expecting at the start of the fourth quarter of 2021. Back then, the Federal Reserve had yet to start to raise interest rates, even though some voices on Wall Street were raising alarm bells about the effects of the monetary policy and stimulus packages in the era of COVID-19 lock downs. High rates naturally do not bode well for high growth sectors, and technology stocks big and small had a rough time on the market the next year particularly as the Russian invasion of Ukraine upended global food and energy markets and spurred multi year high inflation levels which made some question whether consecutive 75 basis point hikes by the Federal Reserve were still a bit low.
Now, with the first quarter of 2024 coming to an end, the stock market is a fundamentally changed environment due to the rise of NVIDIA Corporation (NASDAQ:NVDA). NVIDIA has shown to be the hottest artificial intelligence stock on Wall Street, and at its heart is the multi-billion global data center industry. While most people experience the user side of AI, at its heart, the technology is part of a broader set of data analysis techniques such as machine learning.
Whether it’s AI or ML, both require copious amounts of data to spearhead leading edge applications in high technology industries such as semiconductor fabrication. Processing and storing this data requires considerable data center facilities, which are large scale computing houses that ‘host’ equipment such as graphics processing units (GPUs) and storage modules.
A variety of firms cater to the needs of the global data center industry. Some of the best known in this area are data center hardware manufacturers such as NVIDIA Corporation (NASDAQ:NVDA), Intel Corporation (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD), and the Taiwan Semiconductor Manufacturing Company (NYSE:TSM). On the software side, firms such as Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corporation (NYSE:IBM), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG) provide businesses with software environments to generate meaningful insights from their data.
Therefore, to analyze the performance of data center stocks, one can either see how individual firms such as the equities listed above are performing or track a collection of stocks called an exchange traded fund (ETF). Most popular data center ETFs also include real estate investment trusts (ETFs) due to the sizeable real estate requirements of operating and owning data centers. One such ETF is the Global X Data Center REITs & Digital Infrastructure ETF. Its six month, 12 month, and 36 month year returns sit at 14.5%, 22.27%, and 2.10%, respectively. As expected, the ETF’s annual returns in 2022 were negative, as the broader technology sector took a beating.
Finally, one stock that helps keep track of the broader data center industry might be faring is Digital Realty Trust, Inc. (NYSE:DLR). Here’s what Baron Funds had to say about this particular stock in its Q4 2023 investor letter:
Following strong share performance, we trimmed our large investment in data center REIT Digital Realty Trust, Inc. We remain optimistic about the long-term potential for the company.
Data center landlords such as Digital Realty (and Equinix, Inc.) are benefiting from record low vacancy, demand outpacing supply, more constrained power availability, and rising rental rates. Several secular demand vectors, which are currently broadening, are contributing to robust fundamentals for data center space globally. They include the outsourcing of information technology infrastructure, increased cloud computing adoption, the ongoing growth in mobile data and internet traffic, and artificial intelligence as a new wave of data center demand.
In the last few months, we have also spent time with CEO Andy Power of Digital Realty. Over the last few years, Andy and Digital Realty’s management team have been undergoing a business transformation, which accelerated after its acquisition of Interxion in March 2020, a pure-play European network-dense data center operator. The company has been shedding non-core slower-growth assets, investing and expanding in Europe, growing its retail colocation business, improving its balance sheet, and adding operational expertise by supplementing new management leadership. We have spent a significant amount of time with Andy over the years and believe the investments the company has made are on the cusp of bearing fruit and will pay dividends for years to come. In addition, we believe the fundamentals in its core business are at an inflection point with robust demand/bookings, pricing power, hyperscale cloud players outsourcing a higher percentage of their digital infrastructure needs and limited competitive capacity. We believe these factors will lead to growth in the core business in the next few years and are optimistic about the long-term prospects for the company.
With these details in mind, let’s take a look at some undervalued and best data center stocks according to analysts. A couple that top the list are VNET Group, Inc. (NASDAQ:VNET), IHS Holding Limited (NYSE:IHS), and Applied Digital Corporation (NASDAQ:APLD).
The silhouette of a data center facility in the sunset, illustrating the companies focus on data center solutions.
Our Methodology
To make our list of the best data center stocks according to analysts, we ranked the data center related constituents of the Global X Data Center REITs & Digital Infrastructure ETF by the average analyst share price target percentage upside and picked those with the highest upside.
For these undervalued data center stocks, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Best Data Center Stocks To Buy According To Analysts
12. Micron Technology, Inc. (NASDAQ:MU)
Number of Q4 2023 Hedge Fund Shareholders: 92
Share Price Target Upside: 1%
Latest Average Share Price Target: $94
Micron Technology, Inc. (NASDAQ:MU) is a data center stock because it is one of the leading companies in the world when it comes to manufacturing high end data storage semiconductors. The stock appears to be fairly valued, as the average analyst share price target prices in just a 1% upside.
During 2023’s fourth quarter, 92 out of the 933 hedge funds covered by Insider Monkey’s research had invested in Micron Technology, Inc. (NASDAQ:MU). Ken Griffin’s Citadel Investment Group is the firm’s biggest hedge fund investor in our database due to its $604 million investment.
Micron Technology, Inc. (NASDAQ:MU) joins IHS Holding Limited (NYSE:IHS), VNET Group, Inc. (NASDAQ:VNET), and Applied Digital Corporation (NASDAQ:APLD) in our list of the best analyst data center stock picks.
11. Digital Realty Trust, Inc. (NYSE:DLR)
Number of Q4 2023 Hedge Fund Shareholders: 35
Share Price Target Upside: 1%
Latest Average Share Price Target: $143
Digital Realty Trust, Inc. (NYSE:DLR) is a real estate investment trust that caters to the needs of data center companies. The firm made a big announcement in March 2024, as amidst the AI hype, it shared that its energy savings AI platform will now help the environment in Asia.
After digging through 933 hedge fund portfolios for last year’s December quarter, Insider Monkey found that 35 had invested in the firm. Digital Realty Trust, Inc. (NYSE:DLR)’s largest stakeholder among these is Ken Griffin’s Citadel Investment Group as it owns a $134 million stake.
10. Microchip Technology Incorporated (NASDAQ:MCHP)
Number of Q4 2023 Hedge Fund Shareholders: 43
Share Price Target Upside: 5%
Latest Average Share Price Target: $93
Microchip Technology Incorporated (NASDAQ:MCHP) makes and sells semiconductor products such as microcontrollers and microprocessors. The hype surrounding AI semiconductor stocks has served the firm well, as it has beaten analyst EPS estimates in all four of its latest quarters.
For their fourth quarter of 2023 shareholdings, 43 out of the 933 hedge funds part of Insider Monkey’s database had bought Microchip Technology Incorporated (NASDAQ:MCHP)’s shares. Kerr Neilson’s Platinum Asset Management was the biggest investor through its $141 million investment.
9. Equinix, Inc. (NASDAQ:EQIX)
Number of Q4 2023 Hedge Fund Shareholders: 56
Share Price Target Upside: 7%
Latest Average Share Price Target: $923
Equinix, Inc. (NASDAQ:EQIX) is one of the biggest data center real estate companies in the world. March 2024 is shaping up to be a crucial month for the firm since a former Google Cloud executive is now confirmed to be its next CEO. Equinix, Inc. (NASDAQ:EQIX)’s shares are also highly rated, having secured an average rating of Strong Buy.
After sifting through 933 hedge fund portfolios for their December quarter of 2023 shareholdings, Insider Monkey discovered that 56 had invested in the firm. Equinix, Inc. (NASDAQ:EQIX)’s largest hedge fund shareholder in our database is Philippe Laffont’s Coatue Management as it owns $452 million worth of shares.
8. Silicon Motion Technology Corporation (NASDAQ:SIMO)
Number of Q4 2023 Hedge Fund Shareholders: 44
Share Price Target Upside: 11%
Latest Average Share Price Target: $82
Silicon Motion Technology Corporation (NASDAQ:SIMO) is a Hong Kong-based solid state storage device manufacturer whose products are used to store data in data centers. Analysts appear to view the stock favorably, as notable names such as JPMorgan and Wedbush have rated the shares as Overweight and Outperform.
During last year’s final quarter, 44 out of the 933 hedge funds tracked by Insider Monkey were Silicon Motion Technology Corporation (NASDAQ:SIMO)’s shareholders. Robert Emil Zoellner’s Alpine Associates owned the biggest stake which was worth $58.5 million.
7. American Tower Corporation (NYSE:AMT)
Number of Q4 2023 Hedge Fund Shareholders: 56
Share Price Target Upside: 16%
Latest Average Share Price Target: $228
American Tower Corporation (NYSE:AMT) is a telecommunications and data center real estate investment trust (REIT) headquartered in Boston, Massachusetts. The shares are rated Buy on average, and the average analyst share price target is $227.56.
As of December 2023 end, 56 out of the 933 hedge funds covered by Insider Monkey’s research had held the firm’s shares. The largest American Tower Corporation (NYSE:AMT) hedge fund shareholder is Charles Akre’s Akre Capital Management as it owns 6.8 million shares that are worth $1.4 billion.
6. DigitalBridge Group, Inc. (NYSE:DBRG)
Number of Q4 2023 Hedge Fund Shareholders: 31
Share Price Target Upside: 21%
Latest Average Share Price Target: $23
DigitalBridge Group, Inc. (NYSE:DBRG) is another data center real estate investment trust. The firm’s shares slipped 7% after its latest earnings results, as despite a hefty high double digit fee revenue growth, investors remained unconvinced that DigitalBridge Group, Inc. (NYSE:DBRG)’s push into data center fundraising was driving results.
31 out of the 933 hedge funds part of Insider Monkey’s Q4 2023 database had held a stake in DigitalBridge Group, Inc. (NYSE:DBRG). Charles Akre’s Akre Capital Management was the biggest stakeholder through its $77 million stake.
VNET Group, Inc. (NASDAQ:VNET), DigitalBridge Group, Inc. (NYSE:DBRG), IHS Holding Limited (NYSE:IHS), and Applied Digital Corporation (NASDAQ:APLD) are some top analyst data center stocks.
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Disclosure. None. 11 Best Data Center Stocks To Buy According To Analysts was initially published on Insider Monkey.