The fast rise of artificial intelligence (AI) depends on a key, but often overlooked, backbone – data centres. These buildings hold the chips, servers, cooling systems, and storage needed to keep AI running.
AI stocks have been under pressure in the past few months, as global tariff tensions have risen to boiling point. But even with these ups and downs, we think the core reasons for AI’s expansion remain strong.
Demand for AI chips is still booming, with big companies spending more on equipment and governments around the world getting in on the act.
There’s still a question mark that lower-cost AI models, like we’ve seen out of China, could reduce the need to invest so heavily in new infrastructure. We see this a different way. As costs come down, more companies can make a case for building with AI tools, increasing, not decreasing, overall demand.
While the tech giants lead the AI narrative, there are broader ways to try and capitalise on this theme.
Here are three companies placed to benefit from an ongoing data centre buildout.
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Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
Digital Realty Trust
Digital Realty Trust is one of the largest providers of third-party data centre space on the planet, with over 300 sites across a range of geographies. It’s a real estate investment trust (REIT), building and managing these facilities on behalf of their tenants.
Having been traditionally focused on large and concentrated customers, the focus has shifted to smaller, more flexible, spaces aimed at a broader range of businesses. This added diversification removes some single customer risk, and positions the businesses to benefit from a general increase in demand for data centres, cloud computing and AI.
It’s had to go out and spend though, which has flexed the balance sheet. Progress has been made getting things back to more normal levels, but it was at the expense of a dividend raise in 2023. From here the path to growth looks more likely to come internally, with past acquisitions starting to come good.
Recent performance has been driven by growing data centre demand, with record leasing activity in the year just gone. Data centre space is still limited, and even with new developments on the horizon, we’d expect it to remain that way for a while yet – though not forever.
Digital Realty offers a way to gain exposure to the broad data centre buildout, without having to make a call on which businesses are going to win the AI race. Competition is hot though and there are no guarantees.
NVIDIA
It’s hard to think about AI and data centres without NVIDIA coming to mind. Its energy-efficient chips can handle heavy AI workloads by managing multiple tasks simultaneously.
Early investments in building breakthrough hardware, coupled with complementary software, give them an edge as a one-stop solution. The group has earned the trust of major cloud providers, making it a key player in the AI data centre buildout.
Beyond manufacturing chips, NVIDIA offers a comprehensive ecosystem that tightly integrates hardware and software. Their CUDA platform simplifies AI application development and optimisation, ensuring maximum performance from their chips yielding consistent, scalable results across data centre infrastructure.
NVIDIA’s unique advantage lies in its chips’ ability to enable both training and decision-making (inference). Its latest Blackwell chips, along with their software capabilities, reduce energy usage and make it easier to set up and scale both training and inference data centres efficiently.
There are some short-term challenges though.
AI investment could slow with fears of a US recession and uncertainty surrounding tariffs. Plus, rising competition from tech giants developing their own AI chips could also reduce the reliance on NVIDIA.
The stock features on our 5 share ideas for a Stocks and Shares ISA list and we continue to think the valuation looks attractive. But as we’ve seen in recent months, investors should buckle up and expect volatility.
Vertiv
Vertiv offers a somewhat niche opportunity to gain exposure to the data centre buildout, with products that directly address some of the toughest challenges facing modern AI data centres.
It provides essential power management and high-density cooling systems required to run AI hardware reliably.
The specialist business enjoys strong competitive advantages due to high barriers to entry. Designing and servicing advanced power and cooling systems for AI data centres requires deep expertise and global capabilities, built over decades. Few rivals can match Vertiv’s comprehensive solutions, particularly as major competitors like Huawei face restrictions in western markets.
Recent financial performance has, as expected, been strong.
February’s annual results showed a 30% jump in organic orders, with even stronger growth recorded in North America. The pipeline remains robust as the data centre buildout continues to accelerate.
Vertiv has recently been impacted by the broader AI sector selloff, presenting a potential opportunity. We believe it's well-placed to benefit from the ongoing AI infrastructure expansion, benefitting from longstanding relationships with key chip manufacturers like NVIDIA and Broadcom.
The specialised nature of Vertiv's products does involve a higher degree of risk. Given the uncertain global economic environment, investors should adopt a long-term perspective and prepare for near-term volatility.
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