AI is expected to give the global data center market a major boost, according to Jefferies, and usher in a “new era of electricity demand.” “As GPUs (graphics processing units) become a larger part of the data center ecosystem and drive AI investments, demand for power and data center space has grown at a feverish pace,” the investment bank’s analysts wrote in a June 18 note. They note that demand for data center space has increased by 10% to 20% annually for most of the past 15 years. “But in the past two years, demand has exceeded 30% in most markets, with no signs of slowing down,” they added. The bank said it expects data center growth to remain “strong,” but power generation constraints, supply chain issues and labor market constraints are likely to limit the rate of acceleration. Data centers house the equipment needed to store and process the vast amounts of data used by computing systems, as models associated with artificial intelligence require more data processing than traditional computing. As the data center market grows, demand for electricity will grow as well, Jeffries said, identifying a large number of beneficiaries in these sectors and beyond. Favorite sectors include real estate investment trusts (or REITs), power and energy companies in the United States, utility companies in Europe, and the global metals and mining sector. Stocks to Benefit Jefferies has named several stocks that it believes offer attractive investment opportunities. Popular “pure data center” names include Digital Realty Trust and Equinix. The former is a top choice due to its “significant exposure to bulk/hyperscale data centers, where demand for data centers outstrips the ability to build new supply.” “Digital has been able to raise rents on new leases by more than 80% in the last two years. While rents continue to rise, existing rents on expiring leases will continue to fall until 2028 – as such, lease renewals are spreading,” the bank added. : “Should continue to expand, improving internal growth each year.” Jefferies has a Buy rating on both companies with a price target of $149.25 for Digital Reality and $910.86 for Equinix — or a potential 2%-23% upside. Other buy-rated stocks highlighted by the bank include: RWE in European utilities, EQT in US power and electricity, and Freeport-McMoRan as a beneficiary of rising demand for copper due to its use in data center cables, conductors and more – CNBC's Michael Bloom contributed to this report .
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Data Center Stocks to Buy in the AI Boom: Jefferies
