Best Data Center Stocks for 2024

Best Data Center Stocks for 2024

A data center is a facility housing networked computers that process, store and share data. Data centers are the backbone of cloud computing services and artificial intelligence (AI) applications, making them a critical asset for businesses and other organizations. 

There are a wide range of companies that are involved in the data center industry and their stocks are slated to benefit from an explosion in demand for cloud computing and the spread of AI. Data center demand contributed to price increases of the stocks of chipmakers such as Nvidia and Advanced Micro Devices, or main cloud service providers such as Amazon, Microsoft and Google.

Investment bank UBS predicts 15%-20% growth for the data center sector this year.  Dedicated data center stocks are also set to benefit but haven’t seen the same meteoric rise yet and that provides an opportunity for investors. In this guide, we provide an in-depth analysis of the 10 best data center stocks.

Best Data Center Stocks to Buy in 2024

Here’s a quick overview of the best data center stocks available today:

  1. Equinix: The US-based, large-cap data center real estate investment trust (REIT) rents out server space and provides  fast direct internet connections. It operates 260 data centers in 33 countries on five continents. 
  2. Prologis: The REIT specializes in leasing to logistics companies. It plans to spend more than $25 billion to branch out into building and leasing data centers. It owns 5,613 buildings covering 1.2 billion square feet.
  3. Vertiv: The US company provides power, cooling and IT infrastructure and services to data centers. It sells equipment such as embedded computing systems, static transfer switches and data center racks.
  4. Eaton Corporation: The Irish company provides power management, electrical components and systems to data centers, as well as to utility, machine building, aerospace, and mobility markets.
  5. Digital Realty Trust: The real estate investment trust (REIT) has a big footprint globally, with 300 data centers across 25 countries. It offers data center and colocation services.
  6. Oracle Corporation: Its products and platforms are helping drive demand for more data center space. In addition, Oracle said it plans to spend around $10 billion in 2025 on data center expansion.
  7. Iron Mountain: The US large-cap REIT specializes in leasing out data center space and secure storage. It owns 21 data centers in North America, Europe and Asia. It serves 225,000 customers.
  8. Arista Networks: It delivers cloud-to-cloud networking for large data centers, campus and routing environments, and has more than 8,000 cloud customers worldwide. Its revenue has grown for 15 quarters.
  9. American Tower: The REIT, known for owning and leasing cell and communications towers, has expanded into data centers and cloud computing over the past four years after buying CoreSite.
  10. Snowflake: The company is a cloud-based data platform that uses the infrastructure of large cloud providers to run its services. Its platform allows companies to securely share data among users.

A Closer Look at the Best Data Center Stocks to Invest in

Now, let’s take an in-depth look at the data center stocks worth watching in 2024:

1. Equinix – Demonstrating Consistent Revenue, Dividend Growth

Equinix makes its money by renting server space and by providing fast direct internet connections to businesses. The stock is down by more than 13% over the past month after short seller Hindenburg Research issued a critical report on Equinix, saying the company had overstated its adjusted funds from operation (AFFO), a key metric for REITs. 

Equinix chartEquinix’s Board of Directors said it would undertake an independent investigation into the matter. The company said it has always been transparent in its financial reporting and that its advantages continue to create long-term opportunities. Hindenburg as a short seller stands to make money by driving Equinix’s shares down.

The company said it has grown revenue every quarter for 22 consecutive years. Its revenue rose 13% to $8.19 billion in 2023, and its AFFO per share increased 9% to $32.11. The company forecasts revenue of between $8.79 billion and $8.89 billion, an 8% rise at the midpoint. It also said it expected AFFO per share of between $34.48 and $35.51, up 9% at the midpoint. The company has riased its quarterly dividend for nine consecutive years, including a 25% boost in 2023 to $4.26 per share.

Ticker  P/E  Dividend Yield
NASDAQ: EQIX 74.11 2.23%

2. Prologis – Logistics Behemoth Eyes Data Center Growth

Prologis sees its move into data center leases as a logical extension of its support for logistics companies. The company has already been working with Skybox Datacenters over the past three years to develop data centers in suburban Chicago and Texas. The company is benefiting from several trends. 

Prologis chartIts logistics side is seeing growth as companies invest more in e-commerce and improved supply chains. The addition of data centers, as previously stated, is being driven by the AI adoption trend. Prologis saw core FFO per share rise 8.7% last year to $5.61, while revenue jumped 34.3% to $8 billion. Progolis is planning to purchase or build 20 data centers over the next five years and sees more than 100 opportunities over the long term. 

The company has recently raised its quarterly dividend by 10.3% to $0.96, the 11th straight year of increases.

Ticker  P/E  Dividend Yield
NYSE: PLD 36.17 3.23%

3. Vertiv Holdings – Big Supplier to Data Center Companies

The company went public four years ago and it’s seeing big jumps in sales of the equipment it sells to data centers, which includes everything from embedded computing systems, power and UPS systems, static transfer switches, to data center racks, cabinets and enclosure solutions. Over the past five quarters, its net income has grown by more than 774%. 

Vertiv chartVertiv had sales of $5.4 billion in 2023, up 24.6% and full-year earnings per share (EPS) of $1.19, compared to loss per share of $0.04 in 2022. In 2024, it said it expects sales of between $7.51 billion and $7.66 billion, up 40.2% at the midpoint. It also predicted adjusted EPS of between $2.20 and $2.26.

While the company doesn’t sell its products to the general public, it’s getting plenty of attention from investors. Its shares have climbed 555% since it went public in 2020, making it the best performing company to go public via a special purpose acquisition company (SPAC) merger. 

Ticker  P/E  Dividend Yield
NYSE: VRT 70.41 0.12%

4. Eaton Corporation – Providing Power, Products to Support Data Centers

The company operates in two sectors, Electrical and Industrial, with Eaton expecting 14% growth this year in data center and IT projects in the Electrical segment. The company provides data center performance management (DCPM) software, as well as thermal management products for data centers, along with server and network racks.

Eaton Corp price chart

For the full year 2023, sales were a record $23.2 billion, up 12%, and EPS was $8.02, also up 12%. The growth came from sales to data centers and to utilities, primarily. This year, the company expects revenue growth of between $6.5% and 8.5%, and adjusted EPS to be between $9.95 and $10.35, up 11% at the midpoint over 2023.

Eaton raised its quarterly dividend by 9% this year to $0.94, the 15th consecutive year of increases.

Ticker  P/E  Dividend Yield
NYSE: ETN 39.70 1.18%

5. Digital Realty Trust – Global Leader Among Data Center REITs

Digital Realty is the largest cloud and carrier-neutral data center REIT, providing colocation and interconnection solutions. Antarctica is the only continent it doesn’t have a data center. The company was selected on April 1 to host one of the most powerful AI supercomputers at its data center in Denmark. The company has a record backlog and its renewal leases are being signed at the highest level in nine years.

Digital Realty Trust chartLast year, it had $5.48 billion in revenue, an increase of 16.7%, and funds from operations (FFO) per share of $6.20, up 5.6%. Its core FFO per share was $6.59, down from $6.70 in 2022. Digital is predicting revenue of between $5.55 billion and 5.65 billion, up 2% at the midpoint. It’s forecasting core FFO per share of between $6.60 and $6.75, up 1.2% at the midpoint.

Last year, it didn’t raise its dividend for the first time after 17 consecutive years of increases. It held the dividend at  $1.22 per quarterly share, a yield of around 3.42%.

Ticker  P/E  Dividend Yield
NYSE: DLR 47.55 3.42%

6. Oracle Corporation – Benefiting From Both Sides of Data Needs

The computer technology company is driving the need for data centers and now plans to help meet that demand. It reached a milestone in the third quarter of fiscal 2024, when its cloud infrastructure and software services surpassed its software license revenue for the first time.

Oracle Corporation chartIn the third quarter, Oracle had revenue of $13.3 billion, up 7%, year over year, and EPS of $0.85, an increase of 25% over the same period a year earlier. Its revenue included $5.1 billion from cloud, up 24% year over year, while licensing support revenue was $4.9 billion.

On the company’s earnings call on March 11, CEO Safra Catz said Oracle plans to invest around $10 billion in data center expansion in the next fiscal year, up from $7 billion to $7.5 billion this foscal year. This includes one AI data center in Salt Lake City big enough to “park eight Boeing 747s nose to tail,” according to Oracle chairman Larry Ellison.

The company raised its quarterly dividend by 25% last year to $0.40, after raising it by 33% the year before.

Ticker  P/E  Dividend Yield
NYSE: ORCL 31.99 1.32%

7. Iron Mountain – More Growth Expected in 2024 for REIT

Iron Mountain serves 225,000 customers, delivering digital transformation, data centers, secure records storage, information management, asset lifecycle management, secure destruction and art storage and logistics. It operates data centers in seven countries and its colocation services are booming thanks to the spread of AI.

Iron Mountain chartThe company is coming off a record year with $5.48 billion in revenue, which increased 7%, and adjusted funds from operation (AFFO) per share of $4.12, which rose 5% from 2022. In 2024, it’s forecasting revenue of between $6 billion and $6.15 billion, up 11%, at the midpoint and full-year EPS of between $4.39 and $4.51, an increase of 8% at the midpoint. The big concern about Iron Mountain is the stock appears to be overbought with a P/E around 120.

Iron Mountain raised its quarterly dividend by 5.1% in 2023 to $0.65. The yield is around 3.44% and the AFFO payout ratio is 63.1%, well within the safety boundaries for a REIT, which is required to return 90% of its taxable income through dividends.

Ticker  P/E  Dividend Yield
NYSE: IRM 121.30 3.42%

8. Arista Networks – Rising Data Center Switch Revenue Drives Profits

The cloud networking vendor company has more than 8,000 cloud-computing clients. It has recently released its Arista Etherlink platform that will help networks handle the increased demands from AI-based work. The platform, based on Arista’s EOS operating system, will include a larger range of 800-gigabyte systems and line cards. That is designed to help companies manage AI-based congestion on their networks.

Arista chartArista’s two largest customers, Microsoft (NASDAQ: MSFT) and Meta (NASDAQ: META), are helping drive the AI boom. They contributed 21% and 18% of Arista’s revenue, respectively, in 2023. Arista had revenue of $5.86 billion last year, up 33.8%, and EPS of $6.58, up from $4.27 in 2022. The company already has roughly a 30% market share of data center switch revenues at speeds of 10 gigabits per second or higher. 

The key for Arista is its ethernet platforms have been gaining market share against Nvidia’s Infinibad, used to speed the connection between computers and data centers on the data clusters that are the key to AI and other types of machine learning.

Ticker  P/E  Dividend Yield
NYSE: ANET 41.21 N/A

9. American Tower –  Dipping a Big Toe Into Data Centers

American Tower has seen two consecutive years of record sales from its CoreSite segment. Its communications towers are seeing growth due to 5G rollouts, as well as AI expansion. Most of its business is still from its 224,000 cell towers across five continents, but it has 28 data centers, mainly in major cities in the US.

American Towers chartIn 2023, the company had $11.1 billion in revenue, up 4%, and AFFO per share of $9.87, up 1%. This year, it’s forecasting revenue of between $10.5 billion and $11.2 billion, up 1.3% at the midpoint, and AFFO per share of between $10.21 and $10.45, up 4.7% at the midpoint. 

One concern is the company lowered its dividend this year by 4.7% to $1.62. However, the future dividend appears safe as the company sold its cell tower business in India to an affiliate of Brookfield Asset Management (NYSE: BAM) for $2.7 billion and American Tower is using the cash to pay down its debt.

Ticker  P/E  Dividend Yield
NYSE: AMT 56.44 3.62%

10. Snowflake – Suddenly a Steal at Its Current Price

The cloud provider stands to benefit as more companies move their data to the cloud. A lot of analysts are excited about the stock since former Google executive Sridhar Ramaswamy moved into the role of CEO at Snowflake. Ramaswamy’s last position at Google was as senior vice president of Advertising & Commerce, but he joined Snowflake last May when the company bought Neeva, the world’s first private AI-powered search engine. He was a Neeva co-founder. He is expected to do more with generative AI for Snowflake.

Snowflake chartIn fiscal 2024, Snowflake had $2.8 billion in revenue, up 36%. In fiscal 2025, it’s predicting $3.25 billion in revenue, an increase of 22%. The number of customers climbed by 6% to 9,437 in fiscal 2024. The company isn’t profitable yet, though, and it lost $837.9 million in fiscal 2024, 5% more than the year before.

While the company’s losses are concerning, it’s adding customers at a fast pace and that should help it become profitable over time. Considering its growth rate and as it’s helping companies use AI, its share price, valued at just 18 times forward earnings may be a bargain.

Ticker  P/E  Dividend Yield
NYSE: SNOW N/A
N/A

Types of Data Center Stocks

There are two main types of data center stocks. The first is data center REITs and the second is data center equipment or services companies.

Data center REITs own and operate physical data centers and lease space to businesses. They make their money by charging rent for colocation services and are less volatile than other REITs. Examples include Digital Realty Trust, Equinix and Iron Mountain. Like many REITs, who are required to distribute 90% of their taxable income to investors, they usually have above-average dividends.

Data center equipment and services companies, make and sell the equipment, hardware and software and services used by data centers. This can include servers, storage devices, cooling systems, network equipment and electrical needs. They tend to have more growth than data center REITs but are more volatile as well. Examples include Eaton Corporation, Vertiv Holdings, Arista Networks and Oracle Corporation.

Why Are Data Center Stocks Booming?

According to a report by Prescient & Strategic Intelligence, the global market for data centers is expected to more than double to $622.4 billon by 2030 from $301.8 billion in 2023, which equals to a compound annual growth rate (CAGR) of 10.5% over that period.

Data center growth chart

Now, let’s examine the biggest reasons why this exponential growth is expected to occur:

The Shift Toward Cloud Computing

Cloud providers such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform need massive data centers to store and run applications for their customers. As cloud computing rises, so will the demand for data center capacity.

AWS parent Amazon, Microsoft and Google’s parent Alphabet have all revealed plans to invest billions of dollars into data centers, to support the adoption of AI technology.

At the beginning of 2024, AWS said it will invest $35 billion to build cloud data center campuses in Virginia by 2040, and to spend another $14.6 billion on its two existing data center facilities in Japan by 2027. Subsequently, it said in March it plans to invest $5.3 billion in data centers in Saudi Arabia.

Microsoft said in November that over the next three years it will spend £2.5 billion ($3.2 billion) to expand its data center infrastructure in the UK. In February, it revealed it is spending  €3.2 billion ($3.4 billion) by the end of 2025 on doubling the AI and cloud capacities of its data centers in Germany and on training more than 1.2 million people in digital skills.

In January, Google Cloud said it plans to invest $1 billion to build a new data center in the UK.

The Rise of Big Data

AI, big-data analytics and the Internet of Things are exploding the amount of information that is generated as companies and individuals are creating more data than ever before. All of that information needs to be securely stored, creating a need for data center space.

The large language models that make generative AI technology work are based on enormous data sets. AWS’s explainer helps quantify how big ‘big data‘ is: Open AI’s GPT-3 model has 175 billion parameters. ChatGPT can identify patterns from data and generate natural and readable output. Claude 2 can work over hundreds of pages of technical documentation or even an entire book. AI21 Labs’ Jurassic-1 model has 178 billion parameters and a token vocabulary of 250,000-word parts.

New Technologies Drive Need for Data Center Space

The growth of 5G, new software platforms and other new technologies create large amounts of data and require more processing power. The paradigm shift in people working from home has increased the need for better cloud services and network speeds. The ubiquitous use of mobile phones is also adding to the need for more data centers.

The increasing digitization of industries and their natural growth will also raise demand for more data centers and data center services. All of these factors are lifting demand for more specialized data center infrastructure and data center space.

According to a 2023 report by the consultancy firm McKinsey, data centers have four main components: the facility itself; the industrial equipment, including the mechanical, electrical, and plumbing gear; the IT hardware; and the software. There are also opportunities in data center operations – the management of facilities and IT services, such as hosting and infrastructure as a service (IaaS). Other services, such as power and connectivity, present opportunities, too, according to the research firm.

In the US market alone, which accounts for about 40% of the global market, demand – measured by power consumption to reflect the number of servers a data center can house, is expected to reach 35 gigawatts (GW) by 2030, up from 17 GW in 2022, according to McKinsey analysis. 

US data center demand growth
Source: McKinsey

Where to Get Data Center Stock Picks and Insights

Investing in data center stocks is one way of building long-term wealth considering the current headwinds driving their earnings. To learn more about data center stocks, we recommend checking out AltIndex.

AltIndex graphic

It’s a subscription-based service that uses alternative data and artificial intelligence (AI) to rate stocks, and it updates this data throughout the day. 

While AltIndex doesn’t have a list dedicated to data center stocks, it compiles several lists that include data center stocks, such as the best REIT stocks, as well as the best AI stocks and the best cloud computing stocks, all of which have links to data center stocks.

AltIndex includes web searches, customer satisfaction ratings, social media, and app downloads to help it analyze a company. Its lists of the best stocks get updated every half an hour, and it also provides real-time share prices. The lists use an AI score to show which stocks are likely to make a big move. Stocks are scored from 1 to 100, simplifying the selection process for investors.

AltIndex has more than 10,000 members and provides more than 100,000 stock insights and alerts each day, and has a strong win rate of 75% from its AI stock picks.

You can try AltIndex’s Starter Plan for just $29 a month and receive stock picks directly to your email, as well many other useful features.

Conclusion

Data center stocks aren’t necessarily cheap, but they haven’t been fully appreciated despite most of them seeing at least double-digit share growth over the past year.

Many investors have focused on more obvious AI plays, but there are plenty of long-term trends that benefit data center stocks. The growth in big data, the fast pace of AI adoption and the need for supercomputing power all point to growth for data center stocks. 

Therefore, the growth prospects for data center stocks are warranted, and it makes sense for investors to buy them now before their valuations skyrocket. 

References

Buy these data center stocks to tap big growth, AI needs, says UBS (cnbc.com)

Hindenburg short: Data center provider Equinix ‘selling an AI pipe dream’ (cnbc.com)

PLD March 2024 Citi Presentation vF (d1io3yog0oux5.cloudfront.net)

Vertiv Holdings Co. – Vertiv Reports Strong Fourth Quarter Results and Provides Full Year 2024 Outlook

Q4 2023 Earnings Press Release (q4cdn.com)

Arista Networks – Arista Networks, Inc. Reports Fourth Quarter and Year End 2023 Financial Results

pardot.americantower.com/l/25692/2020-12-17/71kyww/25692/1699307923sGluR6yw/atc_investor_relations_american_tower_financial_operational_update_q3_2.pdf

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Jim Halley
Editor
Jim Halley
Editor

I am an experienced journalist who has also worked as an editor and writer at the Savannah Morning News, Salt Lake Tribune, USA Today, Stars and Stripes, and The Motley Fool. I spent the first half of my career in sports journalism, but in recent years have switched to writing about my other passion, stocks, particularly healthcare, real estate and consumer staples stocks. I've won numerous journalism awards from the Associated Press and state press associations and have been a judge for the Georgia Sportswriters Association. I've written one non-fiction book, Just One More Time, about Georgia Southern football, and…