The 2 Best Data Center Stocks to Buy in October

With the rise of artificial intelligence has come the rise of data centers. The former was directly responsible for the meteoric rise of the latter.

According to the National Telecommunications and Information Administration, there are approximately 5,000 data centers operating in the US, and the number is expected to grow by 9% annually through 2030. Much of the growth will come from hyperscalers, or cloud service providers which operates at scale. The four largest hyperscale platforms I am in the world Amazon(NASDAQ:AMZN) AWS, Alphabet(NASDAQ:GOOG) (NASDAQ:GOOGL) Google Cloud, Meta platforms (NASDAQ:META) and Microsoft(NASDAQ:MSFT)’s Azure. Together, they represent 78% of the total capacity.

While AI is fueling their growth, there is a problem. Even though AI capabilities are expanding exponentially, doubling roughly every nine months, the cost of the technology is rising even faster. A Age of AI said the researcher Time magazine, “The cost of the largest AI training runs is increasing by a factor of two to three per year since 2016.” By 2027, training cost the largest models will cost $1 billion or more.

In addition to the training costs exceeding the ability to pay, the power requirements of AI are massive. A ChatGPT search query consumes 10 times more power than a similar search on Google. Generating an AI image consumes the equivalent of half of a smartphone’s total charge.

The International Energy Agency predicts that the rise of AI will challenge data centers total electricity consumption to reach over 1,000 terawatt-hours (TWh) in 2026, or “roughly equivalent to Japan’s electricity consumption”.

It’s an unsustainable course the industry is on, which is why investors need to be cautious when playing the space. The ability to keep growing will be inhibited by the ability to provide power, which may head for a wall if more power plants aren’t built. As a result, the two companies below are the best data center stocks to buy in October.

Key points about this article:

• Data centers have been one of the fastest growing markets due to the proliferation of artificial intelligence and hyperscale requirements.
• However, their growth has come at a cost in terms of energy consumption and efficiency, and could inhibit future growth, two things the data center stocks below are trying to remedy.
• If you are looking for action with huge potential, be sure to grab a free copy of ours brand new “Next NVIDIA” report.. It has a software stock where we are sure it has 10x potential.

Digital Realty Trust (DLR)

Man and woman with laptop looking at data center panel

Real Estate Investment Trust (REIT) Digital Realty Trust (NYSE:DLR) is the first data center stock to consider. Overall, it is one of the largest REITs in the world, but it is the largest specializing in data centers. It owns over 300 properties and has over 5,000 customers.

New bookings have been strong and rental rates are rising rapidly as AI increases demand. And when it suffers a vacancy, it is able to quickly fill the opening. Digital Realty Trust is using the cash influx to improve its financials, paying down nearly $1 billion in debt during the quarter.

Digital Realty’s growth benefits from its broad geographic footprint. Going beyond a simple storage format, the REIT offers its global customers a colocation model that provides space, power, security and, perhaps most importantly, network connectivity. It is this last part that makes it an attractive investment.

The colocation model, or “colo”, across almost its entire portfolio hits the sweet spot of the fastest-growing data center market. While rival Equinix (NASDAQ:EQIX) has made a specialty of catering to prominent hyperscalers, Digital Realty Trust offers its suite of global benefits with significant exposure to cloud providers.

DLR stock is up 66% since the AI ​​boom began in earnest in late 2022 with the launch of Chat GPT. The stock is up 20% in 2024. Wall Street has a buy rating on the stock that is enhanced by its sustainable competitive advantages based on the scale of geographic diversity that minimizes power crunch.

Vertiv Holdings (VRT)

Woman checking data center systems on tablet computer

Demand for AI and data centers is hot, but it’s creating a literal hotspot in the industry. As mentioned, the enormous power consumption of data centers due to artificial intelligence makes liquid cooling solutions attractive and Vertiv Holdings (NYSE:VRT) could be one of the biggest beneficiaries of this critical need.

Traditional air cooling methods do not meet the thermal mitigation needs of the data center. Vertiv provides these sites with Coolant Distribution Units (CDUs) that manage the flow of coolant in the data center, ensuring optimal performance. It also offers direct-to-chip cooling technology, which means circulating coolant directly to heat-generating components such as CPUs and GPUs.

Vertiv is positioning itself as a key player in this emerging market against rivals such as Eaton (NYSE:ETN). It’s a market growing at double-digit rates, and with a small number of players able to meet the growing demand, it gives Vertiv the ability to expand margins.

VRT shares are attractively priced relative to the competition, and Wall Street expects earnings to grow 30% annually over the long term. Although the stock is up 85% year-to-date, it is 20% below its 52-week high. Given the industry’s growth trajectory, Vertiv is a top data center stock.

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