Data Centers are Rising: Investment Opportunities are Emerging.

Investment Favorite: Data Centers

One of the biggest developments in the markets today is the explosion in the field of artificial intelligence (AI) and the accompanying increase in data center constructions. This trend encompasses massive physical structures that have far-reaching effects in many sectors, not limited to the digital world.

At the center of this are the world's largest technology companies, which are making record levels of capital expenditures in line with AI goals. Companies like Microsoft, Amazon, Meta, and Alphabet are investing historic amounts in data center constructions to achieve their AI and cloud computing goals. Last year, these companies' total spending was approximately $245 billion, and it is now approaching $360 billion.

Data centers consumed about 415 TWh of energy last year, and the International Energy Agency (IEA) forecasts that this figure could reach 945 TWh by 2030. This situation lies at the center of the increasing global electricity demand, with a large portion of this energy requirement directed towards the cooling and climate control systems necessary for the stable operation of data centers.

Needham analyst Sean Milligan notes that with the proliferation of data centers, the demand for reliable energy infrastructure will increase, thus presenting opportunities through two lesser-known energy stocks.

Generac Holdings (GNRC)

First, let's start with Generac, which offers 'total energy solutions' that personalize energy usage. Since 1959, the firm has been a leader in the generator market in North America, offering various energy technologies, such as power generation equipment, energy storage systems, and energy management devices. Generac attracts attention with its products designed to secure both portable energy and grid electricity.

In the industrial sector, Generac's products consist of specialized diesel generators aimed at providing the reliable and sustainable energy required by data centers. According to the results from the second quarter, the company's revenue was reported at $1.06 billion, showing a 6% increase compared to the previous year. This performance allowed for approximately $35 million more than expectations.

According to the expert, Generac's recent earnings suggest a significant opportunity for the stock to rise due to its connection to the data center business. Milligan has given a Buy recommendation for Generac shares with a price target of $248, indicating a potential return of 31% for the coming year.

Primoris Services (PRIM)

The second company to be reviewed is Primoris Services, a company specialized in the construction sector. The firm builds sustainable infrastructures to meet the critical needs of the energy and renewable power sectors. Primoris holds significant potential regarding construction projects and is active in a growing segment of the data center space.

It can plan, build, and connect natural gas and solar energy sources integrated with data centers. Looking at the results from the second quarter, Primoris generated $1.89 billion in revenue, exceeding forecasts by $201 million. The company's earnings before tax per share was $1.68, showing a result $0.60 above market expectations.

Milligan highlighted Primoris's ongoing revenue and earnings growth potential, stating that data center projects present significant opportunities for business volume. Milligan has also provided a Buy recommendation for Primoris shares, with a price target of $175, forecasting a return of 28.5%.

In conclusion, both companies are drawing attention due to the potential increase in the data center market. Investments in this area present significant opportunities for investors.