According to Jefferies, artificial intelligence will significantly boost the global data center market and usher in “a new era of power demand.” [graphics processing units] “Demand for power and data center space is growing at a ferocious pace as AI becomes a bigger part of the data center ecosystem and drives AI investments,” the investment bank's analysts said in a June 18 note. The analysts noted that demand for data center space has grown 10-20% annually for most of the past 15 years. “But over the past two years, demand has grown more than 30% in most markets with no signs of slowing,” they added. The bank said it expects data center growth to “remain robust,” but that power generation constraints, supply chain issues and labor market constraints will likely limit the rate of growth acceleration. Data centers house the equipment needed to store and process the vast amounts of data used by computing systems, and AI-related models require even more data processing than traditional computing. As the data center market expands, so will demand for power, Jefferies said, naming a number of beneficiaries in these segments and beyond. Popular sectors include REITs, U.S. power and energy companies, and utility companies.Jefferies listed several stocks that it believes offer attractive investment opportunities. Among its favorite “pure data center” stocks are Digital Reality Trust and Equinix. The former is the firm's top pick due to its “high exposure to wholesale/hyperscale data centers, where demand for data centers is outpacing the ability to build new supply.” The bank added, “Digital Reality has been able to increase rents on new leases by more than 80% over the past two years. While rents continue to rise, current rents on expiring leases will continue to decline through 2028, so rent renewal spreads should continue to widen, driving improved organic growth each year.” Jefferies has buy recommendations on both companies, with price targets of $149.25 for Digital Reality and $910.86 for Equinix, implying upside potential of 2% and 23%, respectively. Other stocks recommended as buys by the bank include European utility RWE, U.S. energy and power EQT and Freeport-McMoRan, which should benefit from rising demand for copper, a metal used in data center cables and connectors. — CNBC's Michael Bloom contributed to this report.
