The Nvidia-led AI gold rush is paydirt for these data-center growth stocks

By Jurica Dujmovic

Providers of AI infrastructure 'picks and shovels' stand to benefit from growing demand

Hyperscale facilities accommodate tens of thousands of servers and can rapidly scale to meet increasing demand.

Nvidia's rise may have captured headlines, but the tech powerhouse isn't the only potentially lucrative choice for stock investors. Another opportunity lies with the infrastructure providers behind the scenes of the artificial-intelligence revolution.

Nvidia's (NVDA) partnerships with Amazon.com's (AMZN) AWS, Alphabet's (GOOGL) (GOOG) Google Cloud, Microsoft (MSFT) Azure, Tesla (TSLA) and other tech giants have been instrumental in deploying Nvidia's AI systems globally. These collaborations, exemplified by projects like AWS's Ceiba and the integration of Nvidia's H100 GPUs across cloud platforms, have pushed the boundaries of AI capabilities. They've also inadvertently highlighted a critical dependency: the need for robust, scalable infrastructure to support AI advancements.

As Nvidia's AI chips and systems become more powerful and ubiquitous, the computational demands on data centers and networking infrastructure grow exponentially. Tesla's plan to deploy 85,000 Nvidia GPUs by the end of 2024 is just one example.

This infrastructure primarily consists of hyperscale data centers - massive, highly sophisticated facilities designed to support the enormous computational needs of AI and other data-intensive technologies. Unlike traditional data centers, hyperscale facilities are built to accommodate tens of thousands of servers and can rapidly scale to meet increasing demand.

These facilities are not just larger versions of traditional data centers; they represent a fundamental shift in data-center architecture and management. They are designed to be modular and scalable, enabling rapid expansion as demand grows. This flexibility is crucial for supporting the unpredictable and often explosive growth of AI workloads.

Hyperscale data centers are strategically located to optimize for factors like energy costs, network latency and natural-disaster risks. They often form the backbone of cloud-computing services, providing the raw computational power needed for AI training and inference at scale.

The exponential growth in AI capabilities is boosting demand for hyperscale facilities.

The exponential growth in AI capabilities is boosting demand for hyperscale facilities. As AI models become more complex and data-intensive, the need for larger, more efficient and more powerful data centers grows correspondingly. This symbiotic relationship between AI advancement and data-center evolution is creating a robust ecosystem that extends far beyond chipmakers.

Due to systemic changes in supply and demand, the hyperscale data-center market is on a trajectory of explosive growth, with projections indicating it will grow to $262 billion by 2032 from $45 billion in 2024. This represents a compound annual growth rate (CAGR) of 24.7%, underscoring the sector's immense potential. As the AI boom accelerates, infrastructure providers are positioned to reap substantial rewards.

Invest in the companies building and maintaining the critical infrastructure that powers AI.

This shift presents a nuanced opportunity for investors. While Nvidia continues to innovate and grow, the companies that facilitate the deployment and scaling of Nvidia's technologies may offer equally compelling, if not superior, investment prospects.

Ranging from global leaders in digital infrastructure to specialized data-center operators and IT solutions providers, these companies are building and maintaining the critical infrastructure that powers AI advancements. From operating vast networks of data centers to providing cutting-edge networking solutions, these businesses are the picks and shovels of the AI gold rush and stand to benefit from the growing demand for robust, scalable AI infrastructure. Here are five stocks worth considering:

1. Equinix (EQIX): A global leader in digital infrastructure, Equinix (EQIX) operates 260 data centers in 71 major metro areas across the Americas, Asia-Pacific and EMEA (Europe, Middle East, and Africa) regions?.

2. Digital Realty Trust (DLR): Digital Realty (DLR) owns and operates more than 300 data centers across six continents. The company provides scalable and optimized network architectures essential for AI and other demanding applications?.

3. Hewlett Packard Enterprise (HPE): HPE (HPE) provides comprehensive data-center infrastructure solutions, including servers, storage and networking systems.

4. American Tower( AMT): American Tower's CoreSite unit offers high-performance data-center solutions across key North American markets. It operates strategically located facilities to support enterprise and cloud providers?.

5. NTT Ltd.: A unit of Nippon Telegraph and Telephone Corporation (JP:9432) ( NTTYY), NTT operates more than 160 data centers in 20 countries. It provides state-of-the-art data-center solutions and services, supporting businesses with advanced digital infrastructure?.

These five companies are helping to support the rapid data processing and storage that is essential for AI development. The strategic placement and sophisticated design of their data centers ensures they can handle increasing AI demands and offer long-term growth potential. As AI technologies advance, the reliance on robust, scalable infrastructure providers will only deepen.

More: Tesla's AI plans and its Nvidia ties affect the EV giant's earnings outlook

Plus: Nvidia's stock gains as an analyst throws cold water on a bear concern

-Jurica Dujmovic

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07-16-24 1155ET

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