When it comes to companies involved in data centers, I would bet that Nvidia is the first one that comes to mind. While Nvidia has a huge presence in datacenter services, there are a lot of other competitors that are worth keeping an eye on.
Below I’ve outlined some of the challenges facing the data center industry and some potential solutions. Additionally, I’ll discuss my top picks outside of Nvidia and explain why this company, Vertiv Holdings (NYSE: VRT)should be on your radar.
Data centers consume a lot of energy
Data centers are similar to warehouses. But instead of oversized storage units, data centers house critical pieces of IT infrastructure, such as server racks that contain chipsets known as graphics processing units (GPUs).
This type of networking equipment is essential for powering all kinds of artificial intelligence (AI) applications. While AI can bring efficiency to advanced cloud computing or database management projects, there are tradeoffs. One of the biggest opportunity costs of high-performance computing is energy consumption.
According to BarclaysData centers account for 3.5% of U.S. electricity consumption. Moreover, Barclays predicts that this figure will increase to 5.5% by 2027 and 9% by 2030.
If we take this to a more global scale, Goldman Sachs estimates that by the end of the decade, data centers will account for as much as 4% of global energy consumption, up from just 2% today.
The broad theme here is that as demand for AI services continues to rise, these secular tailwinds will impact the energy market in general. As data center power consumption increases, so will the costs required to provide this infrastructure.
Liquid cooling could be a useful solution
Sometimes, if I have too many tabs open on my laptop or if I have a large program running in the background, my computer will get hot. A similar dynamic occurs in data centers. Since networking equipment runs around the clock in data centers, it is natural for servers to get hot.
To mitigate this, data centers are often equipped with fans, air conditioning units, and generators. But as I explored above, these methods of controlling data center temperatures are expensive and likely to increase in the future.
An alternative solution to current common data center energy protocols is liquid cooling. Water and other liquids have superior thermal conductivity and heat transfer properties compared to traditional fan and AC systems. In turn, liquid cooling could be a more efficient method of managing data center energy.
This company is a leader in liquid cooling for data centers
Vertiv Holdings is a leader in liquid cooling technology. Believe it or not, three years ago I published my very first article for The Motley Fool and it was about Vertiv.
At the time, the stock was trading for around $27 per share. Today, it is up more than 200% to around $85 per share.
At the time, my view of Vertiv was that the company would see increased demand for its services due to the growing need for digital infrastructure applications in the Internet of Things (IoT) and cloud computing. While that was a true statement, I had no idea that a year after my article was published in November 2021, the world would be introduced to ChatGPT and AI would become the next frontier in technology.
To me, the statistics in the chart below illustrate a new upswing for Vertiv that will continue for many years to come as the AI revolution takes shape. In fact, in the company’s second quarter earnings report, management indicated raised the guidelines for sales, operating profit and free cash flow.
Given that mission-critical data infrastructure is even more important now than it was a few years ago thanks to AI, it’s no surprise that Vertiv is benefiting. As energy-efficient solutions become another focus for companies investing significant capital expenditures (capex) in data center infrastructure, I see Vertiv in a stronger position today than it was three years ago. Vertiv is an attractive, no-brainer buy-and-hold stock for long-term investors, and now is a great opportunity to buy shares.
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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
Forget Nvidia: 1 Other Data Center Stock You Can Buy Hands-Over Right Now That Hardly Anyone Is Talking About was originally published by The Motley Fool
