The data center industry is set to grow rapidly in the coming years, according to UBS (UBS.N). The investment bank predicts growth rates of between 15% and 20% in 2024 and 2025, followed by "healthy" double-digit growth in subsequent years.
This is based in part on the expected growth of hyperscale computers, which are providing a lot of cloud computing services for AI applications. Data centers house a lot of the computing power needed for AI workloads, and as many technology companies are rapidly developing AI infrastructure, this demand will grow. Large language models require a lot of data center capacity.
“At this stage, growth across the data center-related value chain appears generally healthy for capital goods companies,” UBS analysts wrote in an April 5 note. The firm expects growth in mass electrification and secure power equipment as power usage increases.
"This sector faces the prospect of rapid growth in the near term, is constrained by supply rather than demand, and has the potential for structural growth driven by data creation (internet of things), (machine learning) and (generative) artificial intelligence, as well as data sovereignty considerations," the analyst said. The bank named three stocks to play this trend: U.S.-listed power management company Eaton (ETN.N), French energy technology company Schneider Electric and U.S. power technology company Cummins (CMI.N).
The bank said Eaton is a major player in U.S. data centers, with a 14% market share and "broadly favorable trends" in electrification, while Cummins has "favorable backup power" in data centers. UBS set a target price of $330 for Eaton, slightly lower than its current price target of $321 for Cummins, which represents a potential upside of 9.7% from the current level. UBS believes Schneider is the "most direct European company" in this growth theme, with data center and network sales accounting for 19% and benefiting from the entire value chain from electrification to building management and cooling. UBS set a target price of 250 euros ($270) for the company's shares, or a potential upside of about 20%.
The article is forwarded from: Jinshi Data
