We recently published a list of 11 Best Data Center Stocks To Buy According to Analysts. In this article, we are going to take a look at where Applied Digital Corporation (NASDAQ:APLD) stands against other best data center stocks.
In the ever-evolving landscape of technology, data centers have emerged as the unsung heroes that underpin our digital world. These critical infrastructures are not just the backbone of the internet; they are the engine driving the exponential growth of data, cloud computing, and advanced digital services. The data center industry is on a trajectory of significant expansion, with the market size projected to reach an impressive $418 billion by 2030, according to estimates from IndustryARC. This represents a robust compound annual growth rate (CAGR) of 9.6% during the forecast period from 2023 to 2030. This remarkable growth is fueled by a combination of factors that are reshaping the data center landscape, making it a crucial sector for both technological advancement and investment opportunities.
At the heart of this growth is the increasing demand for hyper-scalability, sustainability, and automation in data centers. In today’s digital age, businesses and organizations require data centers that can scale rapidly to accommodate ever-increasing data volumes, support advanced technological applications, and provide reliable and efficient services. Hyper-scalability, which refers to the ability of data centers to scale up their resources rapidly and efficiently, is becoming a vital requirement as data usage continues to surge. This demand for scalability is driven by the rise of cloud computing, big data, and the Internet of Things (IoT), all of which require robust and flexible data center solutions.
Sustainability is another critical factor influencing the data center market. As environmental concerns become more prominent, there is a growing emphasis on creating data centers that are energy-efficient and environmentally friendly. Green data centers, which focus on reducing energy consumption and minimizing environmental impact, are gaining traction as both businesses and consumers become more eco-conscious. The Department of Energy highlights that data centers account for approximately 2% of all electricity used in the U.S., underscoring the need for more sustainable practices in the industry. Automation is also playing a significant role in transforming data centers.
Modern data centers are increasingly adopting automation technologies to enhance operational efficiency, reduce human error, and streamline processes. Automation in data centers includes everything from automated cooling systems to intelligent data management solutions, all of which contribute to more efficient and reliable operations. The market dynamics of data centers are further influenced by the adoption of advanced technologies such as Artificial Intelligence (AI), Machine Learning (ML), cloud computing, and edge computing.
AI and ML are revolutionizing data center management by enabling predictive maintenance, optimizing resource allocation, and enhancing overall performance. For instance, AI-driven systems can analyze data center operations in real-time, identify potential issues before they become critical, and automate corrective actions. This proactive approach not only improves operational efficiency but also extends the lifespan of data center equipment.
Cloud computing has become a cornerstone of modern IT infrastructure, and its growth is driving increased demand for data centers. As businesses and individuals continue to shift towards cloud-based services, the need for data centers that can support these services is growing. Cloud computing allows for the storage and processing of vast amounts of data in remote data centers, providing flexibility and scalability that traditional on-premise solutions cannot match.
Edge computing is another transformative technology impacting the data center industry. Edge computing brings data processing closer to the source of data generation, reducing latency and improving the performance of applications that require real-time data processing. This shift towards edge computing is driving the development of smaller, geographically distributed data centers that can support the growing demand for low-latency applications and services.
The impact of the COVID-19 pandemic on the data center industry cannot be understated. The pandemic accelerated the digital transformation of businesses and highlighted the critical role of data centers in supporting remote work, online services, and increased internet traffic. With fewer people out in public during the pandemic, global internet traffic surged as more people worked and engaged online from home. This increase in demand led to a 30-35% rise in data center capacity in 2021, as organizations sought to support remote work and ensure the continuity of their operations.
The pandemic also underscored the importance of data centers in maintaining business operations and delivering essential services. Data centers became the backbone of remote work, online education, telemedicine, and other critical services that became indispensable during the pandemic. As a result, the data center market experienced accelerated growth, and this trend is expected to continue as businesses and individuals increasingly rely on digital solutions.
Geopolitical events, such as the Russia-Ukraine crisis, have also impacted the data center industry. The ongoing conflict has led many companies to reassess their operations in the region, with some choosing to suspend or withdraw their services. For example, SAP SE announced in March 2022 that it would halt sales of new products in Russia and shut down all data centers in the country. This situation highlights the need for data center operators to have resilient and adaptable strategies to navigate geopolitical uncertainties.
Regionally, North America remains a dominant force in the data center market, holding a substantial market share. The region’s dominance is attributed to significant investments by major players and the high adoption of advanced technologies. In 2021, North America saw the launch or construction of over 100 data center projects, with major colocation service providers and hyper-scale operators leading the way.
The IT infrastructure segment holds the largest market share within the data center industry. This segment encompasses the hardware, software, and network components required to support data center operations. As businesses continue to migrate towards data center solutions for improved data management and operational efficiency, the demand for IT infrastructure is expected to grow. This growth is further fueled by the increasing adoption of automation and enhanced storage solutions.
Hyper-scale data centers are another significant segment within the industry. These data centers are designed to handle massive volumes of data and high computing power requirements. The rise in IoT-connected devices and the growing emphasis on processing large volumes of digital data are driving the demand for hyper-scale data centers. These facilities are equipped to support the high-performance needs of modern applications and services.
The emergence of green data centers represents a positive shift towards sustainability in the industry. Green data centers focus on reducing energy consumption and minimizing environmental impact. As businesses and consumers become more environmentally conscious, the demand for green data centers is expected to increase. This trend aligns with broader efforts to promote sustainability and address climate change.
Data security remains a critical concern for data centers, especially those handling sensitive information. According to industry reports, a significant percentage of corporate data centers worry about data security. Ensuring robust security measures is essential for protecting data and maintaining trust with clients and customers. The data center industry is undergoing a period of rapid growth and transformation, driven by technological advancements, increased demand for digital services, and a focus on sustainability.
As the digital landscape continues to evolve, data centers will play a crucial role in supporting the infrastructure needed for modern technology and services. The market’s growth is fueled by factors such as hyper-scalability, automation, and the adoption of advanced technologies, while challenges like data security and geopolitical uncertainties also shape the industry’s future.
For investors, the data center sector presents a promising opportunity, with the potential for significant returns as the industry continues to expand. Understanding the dynamics of the data center market, including the key trends and challenges, will be essential for making informed investment decisions and capitalizing on the growth of this critical sector. With that, let’s take a look at the best data center stocks to buy according to analysts.
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An overhead view of a large-scale data center with rows of servers and blinking lights.
Applied Digital Corporation (NASDAQ:APLD)
Upside Potential: 37.90%
Latest Average Share Price Target: $8.40
Applied Digital Corporation (NASDAQ:APLD) stands out as a compelling data center stock due to its significant advancements in high-performance computing (HPC) and cloud services. Specializing in digital infrastructure solutions, Applied Digital operates through three key segments: Data Center Hosting, Cloud Services, and HPC Hosting. The company, formerly known as Applied Blockchain, Inc., has rebranded to reflect its broader focus and continues to expand its capabilities across North America. The company’s recent earnings call highlighted several positive trends and future growth potential despite some short-term setbacks. For Q4 2024, Applied Digital Corporation (NASDAQ:APLD) reported an impressive revenue increase to $43.7 million from $22 million in the same quarter the previous year. This growth was driven by the expansion of its data center hosting facilities and new cloud service contracts. The data center hosting segment alone contributed $26.9 million, showcasing its strong performance and reliability. Although the company faced challenges, such as power outages at its Ellendale facility, it has taken decisive steps to overcome these issues. The Ellendale facility’s transformer failures were resolved by replacing outdated equipment with advanced technology, resulting in a total of 286 megawatts of data center hosting capacity. This adjustment underscores the company’s commitment to maintaining robust infrastructure and ensuring operational efficiency.
Applied Digital Corporation (NASDAQ:APLD) Cloud Services segment also showed robust growth, generating $16.8 million in revenue and advancing its contracts for high-performance computing power for AI applications. The company’s efforts in expanding its HPC data centers are noteworthy, with 400 megawatts under development across North Dakota and a new 100-megawatt facility in Ellendale designed to support demanding HPC applications. Despite a net loss of $64.8 million for Q4 2024, which included substantial one-time expenses and challenges, the adjusted EBITDA stood at $4.8 million, up from $3.4 million the previous year. This indicates that the company’s core operations remain strong and its growth trajectory is promising.
Looking ahead, Applied Digital Corporation (NASDAQ:APLD) is poised for further growth with its strategic initiatives, including securing a significant lease agreement with a major hyperscaler and advancing construction on additional data center campuses. The company’s ability to attract large-scale customers and invest in cutting-edge infrastructure positions it as a strong player in the data center sector. Given these factors, Applied Digital Corporation (NASDAQ:APLD) represents a promising investment for those looking to capitalize on the growing demand for high-performance computing and cloud services.
Overall, APLD ranks 5th on our list of best data center stocks to buy according to analysts. While we acknowledge the potential of APLD to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than APLD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.