Nvidia may be the king in data center services, but one other player may emerge as a more lucrative opportunity in the long run.
When it comes to companies that are involved in data centers, I’d wager that Nvidia is the first one that comes to mind. Although Nvidia has an enormous presence for data center services, there are a host of other competitors worth watching.
Below, I’ve broken down some of the challenges facing the data center industry and some potential resolutions. Moreover, I’ll discuss my top pick outside of Nvidia and explain why this company, Vertiv Holdings (VRT 0.37%), should be on your radar.
Data centers consume a lot of energy
Data centers are similar to warehouses. But instead of being oversize storage units, data centers house critical pieces of IT infrastructure such as server racks that hold chipsets known as graphics processing units (GPUs).
This type of network equipment is essential for powering all sorts of artificial intelligence (AI) applications. Although AI can bring efficiencies to sophisticated projects in cloud computing or database management, there are some trade-offs. One of the biggest opportunity costs of high-performance computing is energy consumption.
According to Barclays, data centers account for 3.5% of electricity consumption in the U.S. Moreover, Barclays is forecasting that this figure will jump to 5.5% by 2027 and 9% by 2030.
Taking this to a more global scale, Goldman Sachs estimates that data centers will account for as much as 4% of worldwide power consumption by the end of the decade — up from 2% today.
The broad theme here is that as demand for AI services continues to rise, these secular tailwinds will influence the energy market at large. As power consumption from data centers rises, so will the costs needed to take care of this infrastructure.
Image source: Getty Images.
Liquid cooling could be a helpful solution
Sometimes when I have too many tabs open on my laptop or I’m running a large program in the background, my computer will begin to get hot. A similar dynamic also happens inside of data centers. As network equipment runs around the clock inside data centers, it’s natural that servers begin to heat up.
To mitigate this, data centers are often equipped with fans, air conditioning units, and generators. But as I explored above, these methods of keeping the temperature inside of data centers under control is costly and likely to rise in the future.
An alternative solution to today’s mainstream energy protocols for data center management is liquid cooling. Water and other fluids have superior thermal conductivity and heat transfer characteristics compared to traditional fan and AC systems. In turn, liquid cooling could be a more efficient method of managing energy for data centers.
This company is a leader in liquid cooling for data centers
Vertiv Holdings is leading the charge 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 about $27 per share. Today, it’s up more than 200% at roughly $85 per share.
At the time, my outlook on Vertiv was that the company would see an increase in demand for its services thanks to the rising need for digital infrastructure applications across the Internet of Things (IoT) and cloud computing. Even though that’s been a correct thesis, little did I know that one year after my article published in November 2021, the world would be introduced to ChatGPT and AI would emerge as the next frontier in technology.
To me, the metrics in the chart below illustrate a newfound uptick for Vertiv that should continue for many years as the AI revolution takes shape. In the company’s second-quarter earnings report, management even raised its guidance for sales, operating profit, and free cash flow.
VRT Revenue (Quarterly) data by YCharts
Considering mission-critical data infrastructure is even more important now than it was just a few years ago thanks to AI, it’s not surprising to see Vertiv emerge as a beneficiary. As energy-efficient solutions become another focal point for companies investing significant capital expenditure (capex) into data center infrastructure, I see Vertiv in a stronger position today than I did three years ago. Vertiv is a compelling no-brainer buy-and-hold stock for long-term investors, and now is a great opportunity to scoop up shares.
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.
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