11 Best Data Center Stocks to Buy Now

In this article, we will look at the 11 best data center stocks to buy now.

Data Center companies worldwide posted record revenues in 2022, which reached $321.47 billion, according to a Statista analysis. The analysis anticipates the market to add more than $20 billion to the valuation by the end of this year. The 2022 performance is impressive, considering the global data center revenue was sub-$200 billion just two years ago.

According to a research by Allied Market Research, the data center market was worth $187.35 billion in 2020 and was expected to clock $517.17 billion by 2030. Interestingly, Statista’s analysis reaches a valuation close to Allied Market Research’s, positing that the global data centers market will generate approximately $410.40 billion in revenue by 2027. However, the former’s CAGR is significantly smaller, at 4.66%, compared to Allied Market Research’s 10.50%. The CAGR mismatch notwithstanding, there appears to be strong agreement that the data centers market has immense potential to break past the half trillion USD mark before the decade’s end.

The CAGRs that several analyses are quoting at which the data center services market will grow in a particular forecast period are incredible. For example, Allied Market Research quotes 10.50% between 2021 and 2030, while Mordor Intelligence’s figure is 13.69% between 2021 and 2026. In this light, a question arises: How will the market achieve an astronomical growth rate? In other words, what factors will drive the growth incredible growth?

For Mordor Intelligence, the growing demand for cloud services will carry much weight. The claim is perhaps in response to a Markets and Markets report, which established that the cloud computing market will expand at a 17% CAGR between 2022 and 2027, reaching $1,240.90 billion. Since data centers provide the critical infrastructure that keeps the cloud computing market running, any expansion that cloud computing posts naturally reaches data center services companies.

Besides cloud computing, increasing demand for e-commerce services will also spur growth in the data center services market. According to Statista, the revenue generated by e-commerce companies worldwide could reach $4.11 trillion at the end of this year. The organization makes a bolder claim that the market should be worth $6.35 trillion by 2027, thanks to an 11.51% CAGR. With the expansion of the e-commerce space comes the possibility of the data center services market’s growth potential blowing up. This is because e-commerce customers want more personalized data and better recommendations for what products to buy, which is made possible by services undergirded by data centers.

As the growth potential of the data center services market expands, the companies involved in this space have more room to grow revenues. Consequently, with stronger financials comes an increased likelihood for the stocks to climb higher. The corporations whose businesses undergird the data center services market include Microsoft Corporation (NASDAQ:MSFT), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Equinix Inc (NASDAQ:EQIX).

Our Methodology

We scanned Insider Monkey’s database of 943 hedge funds and picked 11 data center stocks with the highest number of hedge fund investors.

Best Data Center Stocks to Buy Now 

11. Cyxtera Technologies Inc (NASDAQ:CYXT)

Market cap as of March 27: $161.75 Million

Number of Hedge Fund Holders: 11

Cyxtera Technologies Inc (NASDAQ:CYXT) leads in data center colocation and interconnection services worldwide. It has more than 60 data centers in over 30 markets worldwide and is recognized as a leader in providing colocation and interconnection services.

According to Insider Monkey’s database, 11 hedge funds had a stake in Cyxtera Technologies Inc (NASDAQ:CYXT) as of Q4 2022. The total value of their holdings was $46.6 million.

Like Microsoft Corporation (NASDAQ:MSFT), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Equinix Inc (NASDAQ:EQIX), Cyxtera Technologies Inc (NASDAQ:CYXT) is one of the best data center stocks to buy now.

10. Iron Mountain Inc (NYSE:IRM)

Market cap as of March 27: $14.75 Billion

Number of Hedge Fund Holders: 21

Iron Mountain Inc (NYSE:IRM) is a company that offers data center and colocation services and is considered a top provider in this industry. Iron Mountain Inc (NYSE:IRM) has 21 data centers located across three continents, providing the necessary infrastructure and services for colocation and interconnection for its customers.

According to Insider Monkey’s data, Iron Mountain Inc (NYSE:IRM) was part of 21 hedge fund portfolios at the end of Q4 2022, compared to 23 in the earlier quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP is the company’s biggest stakeholder, with 535,256 shares worth $26.68 million.

9. Digital Realty Trust Inc (NYSE:DLR)

Market cap as of March 27: $28.02 Billion

Number of Hedge Fund Holders: 30

Digital Realty Trust Inc (NYSE:DLR) is a REIT that provides data center, colocation, and interconnection solutions to leading enterprises and service providers worldwide.

There were 30 hedge funds in our database that held stakes in Digital Realty Trust Inc (NYSE:DLR)’s at the end of the fourth quarter, compared to 29 funds in the third quarter. Balyasny Asset Management is the company’s most significant stakeholder, with 743,672 shares worth $74.57 million.

Baron Real Estate Income Fund, in its Q4 2022 investor letter, made the following comment about Digital Realty Trust, Inc. (NYSE:DLR):

“Recently, we re-acquired shares in Digital Realty Trust, Inc. (NYSE:DLR). We believe the company’s valuation is highly compelling following the 43% correction in its share price in 2022. We would note, however, that we are closely monitoring the company because business execution and quarterly results have disappointed at various points in the last few years. We have limited the Fund’s exposure to the company with this in mind.”

8. Equinix Inc (NASDAQ:EQIX) 

Market cap as of March 27: $63.94 Billion

Number of Hedge Fund Holders: 38

Equinix Inc (NASDAQ:EQIX) is an American multinational company specializing in internet connection and data centers and is ranked 8th on the list of the best data center stocks to buy. EQIX provides businesses with access to important locations, partners, and opportunities to quickly and effectively expand their digital services, enhance customer experiences, and increase their overall value.

Deutsche Bank analyst Matthew Niknam raised Equinix Inc (NASDAQ:EQIX)’s price target to $760 from $725 and retained a ‘Buy’ rating on the shares on February 22.

According to Insider Monkey’s Q4 data, 38 hedge funds were long Equinix Inc (NASDAQ: EQIX), compared to 39 funds in the prior quarter. Ian Simm’s Impax Asset Management is the biggest position holder in Equinix Inc (NASDAQ:EQIX), with approximately 659,094 shares worth $431.3 million.

In its Q4 2022 investor letter, ClearBridge Investments, an investment management company, mentioned Equinix Inc (NASDAQ: EQIX). Here is what the fund said:

“Real estate holdings Equinix, Inc. (NASDAQ:EQIX) and Prologis (PLD) were standouts in a sector challenged by materially higher interest rates. Equinix is a best-in-class data center REIT with record leasing and backlog and a conservative balance sheet that should position it well in a downturn. Logistics real estate, meanwhile, has some of the most attractive market dynamics of all real estate subsectors, and Prologis is a clear leader within the group. Logistics real estate should continue to benefit from secular tailwinds of rising e-commerce penetration, ever faster delivery times, and supply chain resiliency (“just in case”).”

7. International Business Machines Corporation (NYSE:IBM)

Market Cap as of March 27: $112.3 Billion

Number of Hedge Fund Holders: 43

International Business Machines Corporation (NYSE:IBM) is a global company that offers integrated solutions and services through its subsidiaries. International Business Machines Corporation (NYSE:IBM) has a long history in computer technology and has been involved in hardware, software, middleware, and consulting services across generations.

International Business Machines Corporation (NYSE:IBM) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2022. There were 40 hedge funds in our database, with IBM holdings at the end of the previous quarter.

6. American Tower Corp (NYSE:AMT)

Market cap as of March 27: $90.18 Billion

Number of Hedge Fund Holders: 61

American Tower Corp (NYSE:AMT) is a global REIT that owns, operates, and develops communication sites. American Tower Corp (NYSE:AMT) has expanded its reach in the cloud computing and digital infrastructure sectors by acquiring companies that own and operate data centers. In 2021, it acquired Coresite in a $10 billion deal, which helped the REIT diversify and gain exposure to the high-demand data industry. It is also considered one of the best data center stocks to buy now.

American Tower Corp (NYSE:AMT) owns 6 edge sites and 2 metro facilities in the US as a part of their data center portfolio, which includes CoreSite and Datasite. CoreSite operates in 8 markets and has 25 facilities.

American Tower Corp (NYSE:AMT) has a history of consistently increasing its dividend payouts. It has increased its dividend every quarter for the past 10 years. Most recently, AMT announced a quarterly cash distribution of $1.56 per share payable to stockholders of record on April 14, 2023. AMT has a ‘Strong Buy’ consensus rating with 12 buy ratings, 2 hold ratings, and 0 sell ratings.

At the close of the fourth quarter of 2022, 61 hedge funds held stakes in American Tower Corp (NYSE:AMT). These funds disclosed collective positions worth $3.38 billion in the company, down from $3.36 billion in the previous quarter with 62 positions. As of December 31, Akre Capital Management is the largest stockholder in the company and holds a position worth $1.48 billion.

Along with Microsoft Corporation (NASDAQ:MSFT), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Equinix Inc (NASDAQ:EQIX), American Tower Corp (NYSE:AMT) is one of the best data center stocks to buy now.

ClearBridge Investments, an investment management company, mentioned American Tower Corp (NYSE:AMT) in its Q4 2022 investor letter. Here is what the fund said:

“Real estate and communication services sectors generated positive returns but lagged others within the Russell 1000 Value Index. The Strategy benefited from its underweight in the real estate sector with American Tower Corporation (NYSE:AMT) as its only holding. REITs are generally perceived to be interest rate sensitive, which negatively impacted American Tower’s recent stock performance. However, we remain confident in the company’s highly durable and predictable business model, which is supported by long-term customer contracts and insatiable wireless data growth.”

5. Oracle Corporation (NYSE:ORCL)

Market Cap as of March 27: $240.98 Billion
Number of Hedge Fund Holders: 65

Oracle Corporation (NYSE:ORCL) provides global solutions for enterprise information technology with its cloud computing service, Oracle Cloud Infrastructure (OCI), offering computing, storage, and networking services through data centers located in 22 countries and 34 locations.

Oracle Corporation (NYSE:ORCL)’s expansion in Oracle Cloud regions and the popularity of its key products and platforms, such as Oracle Autonomous Database, MySQL HeatWave, Java, and Oracle Middleware, are fueling the demand for additional data center capacity.

Oracle Cloud has 40 operational regions and 9 in development, totaling 49 regions soon. Each region comprises 1-3 physically separate data centers called availability domains, connected by a low-latency, high-bandwidth network. Oracle Corporation (NYSE:ORCL) aims to establish at least 2 cloud regions in every country where it operates, with 2 regions already established in the US, Canada, UK, France, South Korea, Japan, Brazil, India, Australia, and the UAE.

4. Advanced Micro Devices, Inc. (NASDAQ:AMD)

Market Cap as of March 27: $154.84 Billion
Number of Hedge Fund Holders: 97

Advanced Micro Devices, Inc. (NASDAQ:AMD) is a semiconductor company that operates in four segments: Data Center, Client, Gaming, and Embedded. Advanced Micro Devices, Inc. (NASDAQ:AMD)’s data center business saw strong growth in fiscal 2022, with revenue rising by 63% to $6 billion and operating income increasing by 86% to $1.8 billion. This segment is expected to continue expanding in 2023. As a result, the company stands fourth on our list of best data center stocks to buy now.

Advanced Micro Devices, Inc. (NASDAQ:AMD) provides data center solutions including the AMD EPYC processor line optimized for virtualization, cloud computing, and HPC workloads, and AMD Instinct Accelerators for machine learning and HPC. AMD ROCm is an open-source software stack for high-performance computing workloads. These solutions provide high performance, security, and scalability to help enterprises meet modern data center demands.

Citadel Investment Group is the company’s largest shareholder, with shares worth $424.78 million.

Here is what Baron Funds had to say about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q4 2022 investor letter:

“During the quarter, we added to our position in Advanced Micro Devices, Inc. (NASDAQ:AMD), a global fabless semiconductor company focusing on high performance computing technology, software, and products. AMD designs leading high-performance central and graphics processing units (known as CPUs and GPUs) and integrates them with hardware and software to build differentiated solutions for customers. While the company is seeing weakness in its PC business in the short term, we continue to believe AMD will be one of the lead beneficiaries of growing data center infrastructure spending driven by expanded use cases for AI and cloud computing across its product portfolio. AMD’s largest share gain opportunity is in its data-center-server CPUs, which continue to take share from incumbent Intel given a superior total cost of ownership proposition driven by better performance per watt of energy consumption across many computing workloads. We also believe Xilinx, a recent acquisition, offers AMD diversification opportunities through which it can benefit from the broader proliferation of semiconductors into all aspects of the industrial and consumer economies.”

3. Amazon.com, Inc. (NASDAQ:AMZN)

Market Cap as of March 27: $1.01 Trillion
Number of Hedge Fund Holders: 240

Amazon Web Services (AWS) is a cloud data services platform provided by Amazon.com, Inc. (NASDAQ:AMZN), which allows users to buy data space as they scale and adjust their plan based on seasonal demand. Amazon Web Services (AWS) operates over 125 physical data centers in more than 20 countries, with plans to have a total of 34 regions available by the end of 2024. Each region contains 3 to 6 isolated locations called availability zones, which have independent power, cooling, and physical security, and are connected with a redundant fiber-optic network.

AWS is investing $35 billion in building data centers across Virginia to expand its cloud computing capabilities, creating 1,000 jobs. AWS is on pace to hit $100 billion in revenue this year and plans to launch 23 more Local Zones in metro areas globally.

ClearBridge Investments, an investment management company, mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2022 investor letter. Here is what the fund said:

“Growing macroeconomic concerns weighed on mega cap names in the portfolio, with consumer discretionary holding Amazon.com, Inc. (NASDAQ:AMZN) feeling pressure from a slowing macroeconomic environment that could weigh on e-commerce and AWS segments. The main detractors from absolute returns were positions in Amazon.com, Regal Rexnord, Apple, Brookfield Renewable and Progyny.”

2. Alphabet Inc. (NASDAQ:GOOG)

Market Cap as of March 27: $1.35 Trillion
Number of Hedge Fund Holders: 209

Google’s parent company, Alphabet Inc. (NASDAQ:GOOG) is one of the best data center stocks to buy now, as it owns dozens of massive computing units to run its services while also renting space for its hardware in other data centers globally. Google operates or is developing almost 30 data centers worldwide, supporting its current and future 44 cloud regions, which are built to be highly available, fault-tolerant, and concurrently maintainable.

Alphabet Inc. (NASDAQ:GOOG) ‘s investments in data centers and hardware are expected to pay off as it continues to improve its services. Despite the upgrade cycle, the business remains highly profitable, with an operating margin of nearly 30%. Alphabet Inc. (NASDAQ:GOOG) is returning excess cash to shareholders through stock buybacks.

Weitz Investment Management mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q4 2022 investor letter. Here is what the fund said:

“Unfortunately, the performance story of the year is told by the Fund’s detractors. Now, weakening ad spending across all channels has added insult to injury, and concerns have spread to the other dominant digital ad player, Alphabet Inc. (NASDAQ:GOOG) — parent of Google and YouTube.

Meta, Alphabet, Amazon and CarMax were all top detractors for the quarter and calendar year periods (FIS and Liberty Broadband, respectively, complete the quarterly and calendar-year detractor lists.) To varying degrees, each is managing through cyclical challenges during a period of substantial investor pessimism. Drawdowns of this magnitude are painful, and it may be prudent for management to moderate the pace of some investments, but we remain encouraged by their long-term focus. In the short run, cutting spending indiscriminately to “defend earnings” may lessen the pain of a drawdown, but it seldom grows a company’s business value — the ultimate prize.”

1. Microsoft Corporation (NASDAQ:MSFT)

Market Cap as of March 27: $2.08 Trillion
Number of Hedge Fund Holders: 259

Topping our list of the 11 best data center stocks to buy now is Microsoft Corporation (NASDAQ:MSFT). The company’s global data center infrastructure is designed with defense-in-depth strategies and redundancy to ensure data center availability and protect cloud architecture. In addition, the infrastructure is distributed worldwide, providing thousands of online services with data residency, compliance, and resiliency options.

Here is what Ariel Investments had to say about Microsoft Corporation (NASDAQ:MSFT) in its Q4 2022 investor letter:

“Enterprise software provider Microsoft Corporation (NASDAQ:MSFT) also traded lower, as higher interest rates and economic concerns have created headwinds for growth-oriented technology companies. We believe this price action runs counter to Microsoft’s solid fundamentals, competitive positioning and long-term business outlook. We continue to anchor on the company driving value creation by capitalizing on a broad and deep set of opportunities, most notably within hybrid cloud infrastructure. The platform continues to demonstrate share gains and strong multi-year purchase intent as enterprises transition to cloud based platforms. At current trading levels, we believe Microsoft’s risk/reward is skewed to the upside.”

Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also check out our articles on  13 Best Depressed Stocks To Buy Now and  13 Small Publicly Traded Semiconductor Companies on the Verge of Big Gains.

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Disclosure: None. 11 Best Data Center Stocks to Buy Now is originally published on Insider Monkey.