We recently published a list of The 15 best data center stocks to buy, according to analysts at Jefferies, Citi and Wall Street. In this article, we take a look at where Equinix, Inc. (NASDAQ:EQIX) is performing compared to other data center stocks.

The rising interest in artificial intelligence hasn’t just impacted semiconductor stocks, although they’re the ones that benefit the most. While the chips these companies make are essential to running AI workloads, they need to be housed somewhere, and that’s where data centers come in.

In fact, AI in the data center space has only accelerated the growing demand in that industry. Before the advent of AI GPUs and accelerators, there was huge demand for enterprise computing chips made by the same companies that now make AI chips. This demand led to gaming GPU companies effectively turning into enterprise computing companies, with sectors like the SaaS and cloud computing industries relying on these products. For some SaaS stocks, check out the 10 best SaaS stocks to buy now.

This demand for data centers before the advent of AI is also visible in statistics. Data from Jefferies shows that data center demand growth increased by 10-20% over the past 15 years, before AI GPUs came on the market. As expected, AI has accelerated this demand, with demand for data center space increasing by 30% in most markets over the past two years. This growth in real estate needs also means that while the computing industry may be able to scale by offering products like networking equipment and cabling, tertiary industries like power generation will take some time to catch up.

If you believe in AI, then the optimistic mindset would suggest that these tertiary companies will only grow in the future as they expand their operations to accommodate the growth of AI data centers. After all, data from Goldman shows that a query directed to ChatGPT consumes 10 times as much energy as a Google search query – understandable, as ChatGPT analyzes data and draws insights from it to generate an answer. By 2030, AI is expected to increase data center power consumption by as much as 160%, as data centers potentially account for 4% of global energy consumption and Europe in particular will need more than $1 trillion to power its AI grid.

Since the U.S. is responsible for the adoption of AI, AI energy consumption in America is naturally higher than in other countries. According to the Boston Consulting Group, AI power consumption will account for 16% of total American energy consumption by 2030. It is expected to grow by 15-20% annually and reach as much as 130 GW, or the amount of electricity used by 100 million homes. AI chip companies are also aware of these trends, and the latest AI chips promise a 25x improvement in energy efficiency. Improving AI performance at the semiconductor level is important, especially as some areas where data centers are growing are forced to switch to coal power to narrow the energy gap.

Nowhere is this more evident than in Northern Virginia, where data centers handle 70% of the world’s internet traffic. With more than 300 data centers generating more than $700 million in taxes annually, the region’s data centers are expected to require a whopping 11,000 megawatts of electricity per year by 2035, according to local regulators’ estimates. That demand has also led to a $5.2 billion effort to lay new transmission lines and keep coal-fired power plants running longer than originally planned.

AI not only needs space and electricity, but also water. Since energy can neither be created nor destroyed, all the megawatts of power that AI chips need have to go somewhere. The chips dissipate it in the form of heat, and cooling it down requires large amounts of water. It is estimated that not only will a whopping 700,000 liters of drinking water evaporate during GPT-3 training, but the global demand for AI could consume between 4.2 and 6.6 billion cubic meters of water by 2027.

Coming back to the real estate market, this is perhaps the easiest way for AI-savvy investors to capitalize on the world’s hunger for computing. Citi believes that “the development and construction of hyperscale data center capacity will increase significantly over the next seven years” as global industrial giants expand into the data center sector. Not only are industrial companies converting their warehouses into data centers, but Citi adds that the associated power requirements for these computing facilities will increase by tens of percent annually through 2030.

Since these Wall Street firms reveal a maze of industries that will benefit from AI, we decided to take a look at the best data center company stocks to buy, according to analysts.

Our methodology

To create our list of the best data center stocks to buy, we ranked the U.S.-listed holdings of Global X’s data center ETF and stocks selected by Jefferies and Citi by average analyst percentage price target, selecting the stocks with the highest upside potential.

For these stocks, we also mentioned the number of hedge funds that bought the stocks in the first quarter of 2024. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).

A team of IT professionals working on a digital platform, indicating the company’s agile digital services.

Equinix, Inc. (NASDAQ:EQIX)

Average analyst price target: 18%

Average analyst price target: USD 905.73

Number of hedge fund investors in Q1 2024: 66

Equinix, Inc. (NASDAQ:EQIX) is a data center colocation and hosting company, meaning it provides businesses with the space to host their servers. It is one of the few stocks on our list that is on both Citi and Jefferies’ lists. Citi believes that the company not only provides a “valuable hub” for cloud and generative AI products, but also offers a “fully managed service for Nvidia AI.” Jefferies had set a price target of $910.86 for Equinix, Inc. (NASDAQ:EQIX) in late June 2024, which represents significant upside potential from the current stock price of $778.79. A key advantage that Equinix, Inc. (NASDAQ:EQIX) has over its peers is that the company has been in business since 1998. This gives it a key advantage when it comes to customer relationships, which are critical in today’s environment where spending can decline due to an economic downturn. This means that while Equinix, Inc. (NASDAQ:EQIX) revenue will decline when companies cut spending, it will pick up again when the economic cloud lifts.

Management of Equinix, Inc. (NASDAQ:EQIX) commented on the company’s robust momentum and presence in the industry during the first quarter 2024 conference call, stating:

Total EQIX ranks 15th on our list of the best data center stocks to buy. While we recognize EQIX’s potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than EQIX but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.