UBS said the data center industry is expected to grow rapidly in the next few years. The investment bank expects growth to be between 15% and 20% from 2024 to 2025, with “healthy” double-digit growth in the following years. This is partly based on the expected growth of hyperscale enterprises, which are providing large amounts of cloud computing services for artificial intelligence applications. Data centers hold the vast amounts of computing power required for AI workloads, a need that will grow as many technology companies are rapidly developing AI infrastructure. Large language models require significant data center capacity. “At this stage, capital goods companies appear to be experiencing generally healthy growth across the entire data center-related value chain,” UBS analysts wrote in an April 5 report. Large-scale electrification and secure power are expected to increase as electricity consumption increases Devices will grow. “The field faces the prospect of rapid growth in the near term, being supply rather than demand constrained, and has the potential for structural growth driven by data creation (Internet of Things), (machine learning) and (generative) artificial intelligence, as well as data sovereignty considerations,” the analysis The teacher said. The bank named three stocks to play into the trend: U.S.-listed power management company Eaton, French energy technology company Schneider Electric and U.S. power technology company Cummins. Eaton is a major U.S. data center player with a 14% share and “broadly favorable trends” in electrification, while Cummins has “favorable backup power share” in data centers, the report said. UBS’s price target for Eaton is $330, which represents marginal downside. Cummins has a price target of $321, representing a potential upside of 9.7%. UBS said Schneider is the “most direct European player” on this growth theme, accounting for 19% of sales in the data center and networking sector and benefiting from the entire value chain from electrification to building management and cooling. The stock has a price target of 250 euros ($270), which represents a potential upside of around 20%. —CNBC’s Michael Bloom contributed to this report.
