The AI data center boom is set to drive significant growth in electricity demand and benefit a range of sectors, according to Jefferies analysts:
Key takeaways: The increasing use of GPUs for AI investments has led to a surge in demand for data center space and power, with growth exceeding 30% in most markets over the past two years and showing no signs of slowing down.
- While Jefferies expects data center growth to remain robust, power generation constraints, supply chain issues, and labor market limitations may limit the acceleration rate.
- As the data center market expands, electricity demand is expected to rise significantly, benefiting various sectors such as REITs, power and energy companies in the U.S., utility firms in Europe, and the global metals and mining sector.
Top stock picks: Jefferies highlighted several companies that present attractive investment opportunities in light of the AI-driven data center boom:
- Digital Realty Trust is Jefferies’ top pick among “pure-play data center” names due to its high exposure to wholesale/hyperscale data centers and ability to push rents up significantly in the past two years.
- Equinix is another buy-rated data center stock, with Jefferies setting a target price of $910.86, implying a potential upside of 23%.
- Other buy-rated stocks expected to benefit include RWE in European utilities, EQT in U.S. energy and power, and Freeport-McMoRan as a beneficiary of rising copper demand for data center cabling and connectors.
Analyzing deeper: While the AI-driven data center boom presents significant growth opportunities, it is essential to consider the potential challenges and limitations that may impact the pace of expansion. Factors such as power generation constraints, supply chain disruptions, and labor market limitations could pose hurdles for companies looking to capitalize on this trend. Investors should carefully assess the competitive landscape and each company’s ability to navigate these challenges while maintaining a strong market position.
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