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What Are Data Center Stocks?
Data center stocks refer to publicly listed companies that are actively involved in building and operating data centers. These companies are active in construction, power generation, thermal management, and data center operations. They are power-hungry, massive, warehouse-like buildings that house servers and related technology powering AI, the internet, and everything in the cloud.
Why Should You Consider Investing in Data Center Stocks?
Data centers are not a new investment phenomenon, as the internet requires them to operate. The breakthrough in AI adoption in 2022 drove demand, as hyperscalers require massive data centers for AI operations. The data center market is on track to exceed $600 billion by the end of 2030, as part of the multi-trillion-dollar AI sector, with annualized double-digit growth rates.
Here are a few things to consider when evaluating data center stocks:
Research data center stocks with revenue growth over the past three years.
Diversify your data center portfolio with companies that construct data centers, provide thermal management, and server components.
Mix your data center stock portfolio with companies involved in electricity generation.
Analyze the balance sheet and avoid high-debt data center stocks.
Check the Power Utilization Effectiveness (PUE), a core indicator of how efficiently the data center operates, together with occupancy rates.
What Are the Downsides of Data Center Stocks?
The data center 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 colocation rather than relying on 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 lower data center demand than currently planned, and rising electricity costs could threaten capital expenditure plans.
Here is a shortlist of data center stocks to consider:
AAON (AAON)
Bloom Energy (BE)
Ciena Corporation (CIEN)
Sterling Infrastructure (STRL)
Seagate Technology (STX)
An Update on Our Previous Best Data Center Stocks to Buy Now
In our previous installment, I highlighted the upside potential of Fabrinet and Applied Digital.
Fabrinet (NYSE:FN) - A long position in FN between $502.01 and $531.89
FN is down over 5% since my recommendation, but I keep my position as outlined, since the bullish catalysts remain in place.
Applied Digital (APLD) - A long position in APLD between $37.96 and $40.37
APLD cratered with the rest of the data center market, and my stop-loss triggered at $30.00 for a loss exceeding 18%. Still, the current price below $30.00 is a renewed buying opportunity.
AAON (NASDAQ: AAON) Fundamental Analysis
AAON (NASDAQ: AAON) is a high-margin manufacturer of heating, ventilation, and air conditioning equipment for commercial and industrial indoor environments, including specifically engineered systems for extreme heat loads in AI data centers. AAON is also a member of the S&P 400 Index.
So, why am I bullish on AAON heading into earnings?
After AAON had an exceptional first quarter, it increased its full-year guidance from a conservative 18 to 20% to an aggressive 40 to 45% surge, which is backed by a record backlog exceeding $2.10 billion, up nearly 110% year-over-year. This is the work of its BASX subsidiary, which AAON acquired to serve hyperscale data centers. Adding to my bullishness is this year’s launch of a new line of liquid cooling solutions specifically engineered for high-density AI racks.
Metric | Value | Verdict |
P/E Ratio | 72.30 | Bearish |
P/B Ratio | 9.00 | Bearish |
PEG Ratio | 3.08 | Bearish |
Current Ratio | 2.62 | Bullish |
Return on Assets | 6.87% | Bearish |
Return on Equity | 13.50% | Bullish |
Profit Margin | 7.30% | Bearish |
ROIC-WACC Ratio | Positive | Bullish |
Dividend Yield | 0.39% | Bearish |
AAON Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 72.30 makes AAON an expensive stock. By comparison, the P/E ratio for the NASDAQ 100 Index is 31.43.
The average analyst price target for AAON is $151.33. It suggests excellent upside potential with manageable downside risk.
AAON Technical Analysis
AAON Price Chart
The AAON D1 chart shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan levels.
It also shows AAON approaching a crucial horizontal support zone.
The Bull Bear Power Indicator is bearish with a positive divergence.
My AAON Long Stock Trade
AAON Entry Level: Between $99.99 and $105.22
AAON Take Profit: Between $146.42 and $151.33
AAON Stop Loss: Between $76.84 and $81.95
Risk/Reward Ratio: 2.01
Bloom Energy (NYSE: BE) Fundamental Analysis
Bloom Energy (NYSE: BE) provides solid oxide fuel cells that offer reliable, always-on baseload power independent of the local utility grid, making them ideal for hyperscalers turning to on-site generation. AAON is also a member of the Russell 2000 Index.
So, why am I bullish on Bloom Energy before it reports earnings?
The Oracle master services agreement to supply up to 2.8 GW of solid oxide fuel cell (SOFC) for its AI data centers (Project Jupiter) remains the core driver. It validates Bloom’s technology as a primary power source, replacing traditional gas turbines. The $20 billion backlog, $6B in product and $14B in services, reinforced my bullishness, while grid independence allows BE to deploy power in roughly 55 days, making it essential for hyperscalers.
Metric | Value | Verdict |
P/E Ratio | Unavailable | Bearish |
P/B Ratio | 57.07 | Bearish |
PEG Ratio | 0.90 | Bullish |
Current Ratio | 5.03 | Bullish |
Return on Assets | 3.09% | Bearish |
Return on Equity | 1.29% | Bearish |
Profit Margin | 0.25% | Bearish |
ROIC-WACC Ratio | Negative | Bearish |
Dividend Yield | 0.0% | Bearish |
Bloom Energy Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio for Bloom Energy is unavailable. By comparison, the P/E ratio for the S&P 500 Index is 28.52.
The average analyst price target for Bloom Energy is $286.20. It suggests excellent upside potential with reasonable downside risk.
Bloom Energy Technical Analysis
Bloom Energy Price Chart
The Bloom Energy D1 chart shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan levels.
It also shows Bloom Energy inside a horizontal support zone.
The Bull Bear Power Indicator is bearish with a positive divergence.
My Bloom Energy Long Stock Trade
BE Entry Level: Between $183.22 and $195.09
BE Take Profit: Between $241.75 and $252.00
BE Stop Loss: Between $156.79 and $169.09
Risk/Reward Ratio: 2.22
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