The Best Data Centre Stocks to Buy Now

What are Data Centre Stocks?

Data centre stocks refer to publicly listed companies that are actively involved in building and operating data centres. These companies are active in construction, power generation, thermal management, and data centre operations. There are power-hungry, massive warehouse-like buildings that house the servers and related technology to power AI, the internet, and everything in the cloud.

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Why Should You Consider Investing in Data Centre Stocks?

Data centres are not a new investment phenomenon, as the internet requires data centres to operate. The breakthrough in AI adoption in 2022 created a demand boost, as hyperscalers require massive data centres for AI-related operations. The data centre market is on track to exceed $600 billion by the end of 2030, as part of the multi-trillion AI sector, with annualized double-digit growth rates.

Here are a few things to consider when evaluating data centre stocks:

• Research data centre stocks with revenue growth over the past three years.
• Diversify your data centre portfolio with companies that construct data centres, provide thermal management, and server components.
• Mix your data centre stock portfolio with companies involved in electricity generation.
• Analyze the balance sheet and avoid high-debt data centre stocks.
• Check the Power Utilization Effectiveness (PUE), a core indicator of how efficiently the data centre operates, together with occupancy rates

What are the Downsides of Data Centre Stocks?

The data centre segment is highly competitive and requires massive capital expenditures to ensure servers run with the most cutting-edge technology. Energy availability is another significant factor, with some hyperscalers preferring co-location to the energy provider. The AI hype has spiked valuations, which is adding to downside risks. The AI boom will eventually slow down, technological breakthroughs could result in less data centre demand than currently planned, and rising electricity costs could threaten capital expenditure plans.

Here is a shortlist of data centre stocks to consider:

• Super Micro Computer (SMCI)
• Modine Manufacturing (MOD)
• nVent Electric (NVT)
• Nebius Group (NBIS)
• Pure Storage (PSTG)
• Eaton Corporation (ETN)
• Vertiv Holdings (VRT)
• VNET Group (VNET)
• Equinix (EQIX)
• Cisco Systems (CSCO)
• Vertiv Holdings (VRT)
• Micron Technology (MU)

Super Micro Computer Fundamental Analysis

Super Micro Computer (SMCI) is a leading producer of high-performance and high-efficiency servers. It also offers server management software and storage systems for markets including data centres, artificial intelligence, cloud computing, and edge computing. SMCI is also a component of the S&P 500.

So, why am I bullish on Super Micro Computer despite its double-digit correction?

Despite a 47% surge in year-over-year revenues, Super Micro Computer tumbled over 30% due to its weakest gross margin on record. I think the sell-off was overdone, and SMCI introduced a new line-up of AI-optimized servers and liquid cooling systems. It continues to grow its global manufacturing reach. The collaboration with key industry players will allow SMCI to deliver cutting-edge data centres and maintain a competitive edge.

Super Micro Computer Fundamental Analysis Snapshot

The price-to-earnings (P/E) ratio of 27.27 makes SMCI a reasonably priced stock. By comparison, the P/E ratio for the S&P 500 is 29.53.

The average analyst price target for Super Micro Computer is $49.82. This suggests moderate upside potential with acceptable downside risks, and I believe it can challenge its previous high of $62.36.

Super Micro Computer Technical Analysis

Super Micro Computer Price Chart

• The SMCI D1 chart shows price action attempting to reclaim its ascending 61.8% Fibonacci Retracement Fan level.
• It also shows Super Micro Computer moving higher inside its bullish price channel.
• The Bull Bear Power Indicator turned bearish but remains near its ascending trendline.

My Call on Super Micro Computer

I am taking a long position in Super Micro Computer between $43.33 and $47.16. The PEG ratio confirms excellent growth prospects, and the post-earnings slump lowered valuations to an acceptable level. I am also buying its latest AI-optimized servers and liquid cooling systems.

Modine Manufacturing Fundamental Analysis

Modine Manufacturing (MOD) is a thermal management company. It manufactures state-of-the-art precision air conditioning and liquid cooling systems, a core requirement for high-density data centres. MOD is also a component of the Russell 2000 index.

So, why am I bullish on MOD after its pullback from recent highs?

I like the diversification at Modine Manufacturing. Aside from its thermal management solutions for data centres, MOD also serves the automotive, agriculture, and construction industries. It features excellent operational statistics, which lead its industry, and I appreciate its strategic acquisitions. The 80/20 business principle has also driven improvements across its operations.

Modine Manufacturing Fundamental Analysis Snapshot

The price-to-earnings (P/E) ratio of 39.73 indicated MOD as an expensive stock. By comparison, the P/E ratio for the S&P 500 is 29.53.

The average analyst price target for MOD is $160.00. This suggests good upside potential with manageable downside risks.

Modine Manufacturing Technical Analysis

Modine Manufacturing Price Chart

• The MOD D1 chart shows price between its ascending 0.0% and 38.2% Fibonacci Retracement Fan levels.
• It also shows Modine Manufacturing inside its horizontal support zone.
• The Bull Bear Power Indicator turned bearish but remains within its ascending trendline.

My Call on Modine Manufacturing

I am taking a long position in Modine Manufacturing between $129.00 and $141.18. Its recent acquisitions of AbsolutAire and LB White will strengthen its data centre thermal management portfolio. Its industry-leading operational stats provide quality downside protection, making MOD one of my preferred data centre picks.

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