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In this article, we will look at 10 best data center stocks to invest in according to hedge funds. If you want to skip our detailed analysis of the data center industry which highlights key trends and major players, you can go directly to 5 Best Data Center Stocks to Invest In.
According to an industry analysis report published by Allied Market Research, the global data center market was worth $187.35 billion in 2020 and is expected to grow at a CAGR of 10.5% from 2021 to 2030, garnering a value of $517.17 billion by the end of the forecasted period. Prominent drivers for this growth, which will be discussed in detail below, include the rise in cloud adoption, investments from multiple sectors including the government in data center infrastructure and technologies, and technological advancements in IoT applications are just a few to name.
Data Center Market: Trends and Growth Drivers
The Covid-19 pandemic and the consequent shift of physical operations to virtual environments boosted the adoption of cloud platforms and services. This led to a sharp spike in data usage by consumers. According to a recent article published on The World Economic Forum's website, the total data we create, capture, copy and consume currently stands at 59 zettabytes a year on average, and it is expected to triple by 2025. The growth in data generation, usage, and consumption is the primary driver for the data center market. Other key factors that are driving the growth of the data center market according to PhoenixNAP, a leading North American infrastructure-as-a-service provider, include the rise in popularity of remote working, technological advancements in data-intensive domains such as IoT, machine learning, and artificial intelligence, the digital transformation of businesses, industry 4.0, and the adoption of digital solutions by small and medium enterprises.
Major trends that are shaping the data center market primarily include climate change, advancements in and adoption of blockchain and Web 3.0 technologies, and industrial automation among others. Climate change seems to be a must-watch trend for the global data center market as businesses become more considerate of ESG concerns and shift toward going green. Some of the biggest names in the tech industry that own and operate their own data centers have managed to run these powerhouses on renewable energy. These corporations that are dedicated to becoming or remaining carbon neutral and operate clean and green data centers all over the world include Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG).
Our Methodology
To determine the 10 best data center stocks to invest in, we reviewed industry analysis reports and picked out major players. We focused on companies that mainly offered data center products and services to ensure that our readers can get a sense of pure-play stock ideas in the booming data center market. We gave weight to the analyst and investor sentiment for each stock and narrowed down our selection to stocks that had positive sentiment. Finally we used Insider Monkey's hedge fund sentiment data to come up with the list of 10 best data center stocks to buy according to hedge funds. We wanted to include the sentiment of those hedge funds that were forced to sell their holdings after the market crashed in Q2 and Q3 which is why we used hedge fund sentiment data for the first quarter.
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10 Best Data Center Stocks to Invest In
10. Iron Mountain Incorporated (NYSE:IRM)
Number of Hedge Fund Holders: 16
Iron Mountain Incorporated (NYSE:IRM) is a leading provider of data center and colocation services. The company owns and operates 11 data centers in North America which include enterprise, edge, and hyper-scale data centers in Boston, Denver, Kansas City, New Jersey, Ohio, Northern Virginia, Pennsylvania, Phoenix, and Scottsdale.
The company has a global data center portfolio worth more than $2 billion and has established its global footprint with 20 locations that span North America, Europe, and Asia. Iron Mountain Incorporated (NYSE:IRM) is a leading name in the data center industry and one of the fastest-growing colocation services providers, which is why it is one of the best data center stocks to invest in.
On June 24, Barclays analyst Brendan Lynch initiated coverage of Iron Mountain Incorporated (NYSE:IRM) with a buy-side Overweight rating and a $58 price target.
As of March 31, Adage Capital Management is the dominating stakeholder in Iron Mountain Incorporated (NYSE:IRM) and owns over 0.30 million shares of the company. The fund's stakes were estimated at $16.75 million.
Hedge funds are piling into the company. At the end of Q1 2022, 16 hedge funds were long Iron Mountain Incorporated (NYSE:IRM) with stakes worth $61.19 million. This is compared to 13 positions in the previous quarter with stakes worth $55.26 million. The hedge fund sentiment for the stock is positive.
Big tech companies like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG) rely excessively on data center solutions and own and operate their own data centers.
9. Digital Realty Trust, Inc. (NYSE:DLR)
Number of Hedge Fund Holders: 31
Digital Realty Trust, Inc. (NYSE:DLR) is a REIT that invests in carrier-neutral data centers and provides colocation and peering services. As of July 2022, Digital Realty operates 167 data centers worldwide, of which 155 are in North America. At the close of Q1 2022, 31 hedge funds were bullish on Digital Realty Trust, Inc. (NYSE:DLR) and held stakes worth $556.70 million in the company. This is compared to 26 positions in the preceding quarter with stakes of $409.09 million. The hedge fund sentiment for the stock is positive.
Analysts are bullish on the data center market. On June 30, Jefferies analyst Jonathan Petersen raised his price target on Digital Realty Trust, Inc. (NYSE:DLR) to$160 from $151 and upgraded the stock to Buy from Hold. On July 1, Wells Fargo analyst Eric Luebchow reiterated his Overweight rating on Digital Realty Trust, Inc. (NYSE:DLR).
Another feature that makes Digital Realty Trust, Inc. (NYSE:DLR) an attractive investment option for investors looking to gain exposure to the data center market is dividends. The company has been growing its dividends for the past 17 years and has a 5-year dividend CAGR of 5.63% and an annual payout ratio of 97.51%. As of July 8, the stock has a forward dividend yield of 3.80%.
As of March 31, Jasper Ridge Partners is the most prominent stakeholder in Digital Realty Trust, Inc. (NYSE:DLR) and has stakes worth $92.51 million in the company. The investment covers 4.39% of the fund's 13F portfolio.
8. Equinix, Inc. (NASDAQ:EQIX)
Number of Hedge Fund Holders: 40
EQIX ranks 8th on our list of the best data center stocks to buy. Equinix, Inc. (NASDAQ:EQIX) is an American multinational company that specializes in internet connection and data centers. As of July 2022, Equinix, Inc. (NASDAQ:EQIX) owns and operates over 220 International Business Exchange data centers that are spread across 27 countries worldwide. As of July 1, Wells Fargo analyst Eric Luebchow has a buy-side Overweight rating on Equinix, Inc. (NASDAQ:EQIX).
On June 30, Jefferies analyst Jonathan Petersen raised his price target on Equinix, Inc. (NASDAQ:EQIX) to $790 from $750 and upgraded the stock to Buy from Hold.
Equinix, Inc. (NASDAQ:EQIX) is working on expanding its operations which is why it is ranked among the 10 best data center stocks to invest in. On May 3, the company reportedly acquired four data centers in Chile from Entel, a telecommunication services provider based in Chile. The company also announced that it intends to acquire an additional data center in Peru and has signed an agreement with Entel.
At the close of Q1 2022, 40 hedge funds were long Equinix, Inc. (NASDAQ:EQIX) and held stakes worth $1.20 billion in the company. Of these, Impax Asset Management was the most prominent shareholder, having stakes worth $490.92 million in the company.
Like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG), Equinix, Inc. (NASDAQ:EQIX) is committed to its green energy goals and therefore designs, builds and operates its data centers using 100% clean and renewable energy.
7. SBA Communications Corporation (NASDAQ:SBAC)
Number of Hedge Fund Holders: 41
SBA Communications Corporation (NASDAQ:SBAC) is structured as a REIT that owns and operates wireless infrastructure in the United States, Canada, Central America, South America, and South Africa. On May 2, Morgan Stanley analysts released their list of high-conviction stock picks which contained stocks that the analysts saw 32% upside for, and SBA Communications Corporation (NASDAQ:SBAC) was one of them. Bullish analyst and investor sentiment and SBA Communications Corporation's (NASDAQ:SBAC) market-leading position compelled us to rank it among the best data center stocks to invest in right now.
Analysts are bullish on the data center market and major players like SBA Communications Corporation (NASDAQ:SBAC). On June 30, Jefferies analyst Jonathan Petersen trimmed his price target on SBA Communications Corporation (NASDAQ:SBAC) to $347 from $383 and reiterated a Hold rating on the shares. On July 1, KeyBanc analyst Brandon Nispel reiterated his buy-side Overweight rating on SBA Communications Corporation (NASDAQ:SBAC) while lowering his price target on the shares to $367 from $393.
At the close of Q1 2022, 41 hedge funds held stakes in in SBA Communications Corporation (NASDAQ:SBAC) worth $928.07 million. Of these, Arrowstreet Capital was the most prominent shareholder in the company, having stakes of more than $246.96 million in the company.
6. Microchip Technology Incorporated (NASDAQ:MCHP)
Number of Hedge Fund Holders: 42
Microchip Technology Incorporated (NASDAQ:MCHP) develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia. The company also offers a range of data center products and services including NVM Express, SAS/SATA, and PCI Express, all of which optimize server storage performance and come with the added benefits of reliability and security. Microchip Technology Incorporated's (NASDAQ:MCHP) solid portfolio of data center products and services puts it in a strong position to gain more popularity in the data center industry, and this is why it is ranked among the best data center stocks to invest in.
Analysts are bullish on Microchip Technology Incorporated (NASDAQ:MCHP). On June 29, BofA analyst Vivek Arya cut his price target on Microchip Technology Incorporated (NASDAQ:MCHP) to $74 from $85 while maintaining a Buy rating on the shares.
At the end of Q1 2022, 42 hedge funds were long Microchip Technology Incorporated (NASDAQ:MCHP) with stakes worth $993.42 million. This is compared to 48 positions in the preceding quarter with stakes worth $1.27 billion.
As of March 31, Platinum Asset Management owns over 4 million shares of Microchip Technology Incorporated (NASDAQ:MCHP) and is the largest shareholder in the company. The fund's stakes are valued at $305.59 million, which covers 9.38% of Kerr Neilson's 13F portfolio.
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Disclosure: None. 10 Best Data Center Stocks to Invest In is originally published on Insider Monkey.
