In this article, we will look at the 7 Underperforming Data Center Stocks to Buy According to Short Sellers.
Rapid AI adoption continues to drive demand for data centers. While GPUs and Memory chips take much of the limelight, AI training cannot simply be carried out using semiconductor chips alone. Several components need to come together to form a data center, which then serves the massive compute requirements driving the industry. This includes, among other things, networking equipment, cooling technologies, and power infrastructure to both power the equipment and to optimally utilize the power being delivered.
Talking to Schwab Network just one month ago, Lucas Downey of MoneyFlows commented on how the AI buildout was still going strong:
As these data centers continue to build out all over the country and all over the world, we’re going to face more bottlenecks, and that’s where the big opportunity is …there are multiyear runways for what’s going on in AI buildout, its not stopping anytime soon.
There are stocks that have become multibaggers in a very short period of time as a result of the above demand. At the same time, others have not fared so well, attracting short sellers as a result and creating opportunities for contrarian traders as well. We decided to unearth such stocks in our list of 7 underperforming data center stocks to buy according to short sellers.
Our Methodology
To come up with our list of 7 underperforming data center stocks, we first compiled a list of companies, using financial media and ETF holdings, that derived a significant portion of their revenue from the data center business. We then filtered out companies with at least a 5% short interest and a one-month share price decline of at least 10%. These companies are therefore underperforming in the short term while on short sellers’ radar as well. They have also reported recent investor-worthy news and are ranked in ascending order of their share price decline.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Insider Monkey’s quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 599.2% since May 2014, beating its benchmark by 372 percentage points (see more details here).
Note: All share price data is as of market close on July 2, 2026.
7. Microchip Technology Inc (NASDAQ:MCHP)
One-month Performance: -12.7%
On June 29, Vijay Rakesh of Mizuho Securities maintained his Buy rating on the Microchip Technology Inc (NASDAQ:MCHP) stock along with a price target of $112. The analyst’s price target suggests a further 31% upside, which sits just below the median analyst upside on Wall Street of 41.8%.
The stock is down over 12% in the last one month, and this underperformance has happened despite an earnings report in May that propelled the stock to new all-time highs. Most recently, effective June 27, the stock has been reclassified across the Russell 1000, 3000, and Midcap indexes from Value to Growth. One way to look at the reclassification is that the perception of the company has changed from a value stock to a more growth-focused one. This could bring new liquidity as new funds take positions in the stock. While the company’s recent announcement of TimePictra 12 platform and US export license show some positivity, the risks around high inventory levels and margin pressure continue to pressure the stock price.
Microchip Technology Inc. (NASDAQ:MCHP) provides smart, connected, and secure embedded control solutions. Its semiconductor products business designs, develops, manufactures, and markets mixed-signal microcontrollers, development tools, analog and interface products, timing and connectivity devices, and memory products.
6. Lumentum Holdings Inc. (NASDAQ:LITE)
One-month Performance: -29.2%
On June 12, Saiyi He of CMB International Securities started coverage of Lumentum Holdings Inc. (NASDAQ:LITE) with a Buy rating. The analyst set a price target of $1070 for the stock. The firm’s assigned price target implies a further 46% upside from current levels. This upside is close to the median Wall Street analysts’ upside of 55%.
On a more bullish note, Northland Securities analyst Tim Savageaux raised the firm’s target price on Lumentum Holdings Inc. (NASDAQ:LITE) from $1000 to $1200 and kept an Outperform rating on the stock. The analyst believes sector-wide tailwinds will trigger the upside in LITE stock. He mentioned that recent positive comments from Nvidia CEO Jensen Huang have increased investor confidence in Marvell Technology. The positive AI data center results from HPE and strong spending on AI infrastructure by Alphabet Inc. also support a positive outlook for the sector. The analyst raised price targets on several communications technology companies, as demand for AI optical and networking is growing rapidly. Moreover, according to CNN’s compilation of analyst price targets, LITE stock has a median target price of $1130, which reflects a further 55% upside from the current share price, confirming that Tim Savageaux’s sentiment is shared across Wall Street.
Lumentum Holdings Inc. (NASDAQ:LITE) provides optical and photonic products. It operates through two segments: Cloud and Networking, which deals with optical and photonic components, modules, and subsystems, and Industrial Tech, which includes solid-state lasers, kilowatt-class fiber lasers, ultrafast lasers, diode lasers, and gas lasers.
While we acknowledge the potential of LITE to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than LITE and that has 100x upside potential, check out our report about the cheapest AI stock.
Click to continue reading and see the 7 Underperforming Data Center Stocks to Buy According to Short Sellers.
Disclosure: None. Follow Insider Monkey on Google News.
