In the era of AI computing power, how can server concept stocks capitalize? These companies are worth paying attention to in 2024.

As generative artificial intelligence experiences a comprehensive boom, global tech giants are increasingly investing in servers and data centers. According to Huawei’s forecast, by 2030, the global demand for intelligent computing power will reach 52.5 ZFLOPS, with a compound annual growth rate of 82.65%. This wave of computing power is reshaping the server industry chain and also bringing new opportunities for investors—server concept stocks are becoming a focus in the US stock market.

Why are server concept stocks worth关注?

Servers are the core infrastructure of data centers, responsible for data processing, storage, and computation. Currently, the prosperity of the server industry mainly stems from three major driving forces:

AI large model computing power demand The launch of ChatGPT has triggered a global AI competition, with tech companies vying for computing resources. Computing power has become a core asset in AI competition, accelerating data center expansion.

Continuous construction of cloud computing and data centers As cloud services become widespread, the demand for data center infrastructure from enterprises surges. From network equipment, storage systems to power and cooling solutions, the entire supply chain is expanding.

Growth of IoT and edge computing With explosive growth of IoT devices, the demand for distributed processing capabilities increases, indirectly boosting the demand for servers and related infrastructure.

Investment opportunities in 5 selected server concept stocks

Company Name / Code / Latest Market Cap / P/E Ratio / EPS

Cisco Systems CSCO / 190.44 billion / 15.83 / 2.99
Vertiv Holdings VRT / 28.65 billion / 58.19 / 1.32
Oracle ORCL / 379.81 billion / 36.45 / 3.81
Digital Realty Trust DLR / 49 billion / 40.21 / 3.69
NVIDIA NVDA / 2.76 trillion / 65.72 / 1.73

Cisco Systems (CSCO): Absolute leader in network infrastructure

Founded in 1984, Cisco controls over 40% of the global enterprise network market share. The company’s business covers Internet Protocol, network products, and cybersecurity solutions.

Recently, Cisco’s strategic layout has been quite aggressive— in 2023, it acquired nine companies to expand its cloud and AI security product lines, and announced the acquisition of Splunk, which will make it a top global software company with significant recurring revenue growth. In June, Cisco launched Cisco Nexus HyperFabric AI clusters, an integrated AI data center solution developed jointly with NVIDIA, providing enterprises with complete hardware and software stacks for local deployment of generative AI. Management stated this will be the first data center product line capable of cloud management, demonstrating Cisco’s deep accumulation in infrastructure.

Financial performance shows that Cisco has maintained stable annual earnings growth over the past 7 years, often exceeding expectations. The market expects the company to sustain EPS around $3.7 in the coming years. Coupled with stable dividends, this stock is attractive to funds and long-term investors. If the collaboration with NVIDIA exceeds expectations and contributes to revenue, it could serve as a catalyst for stock price appreciation.

On the technical side, the daily chart’s DMI and MACD recently showed golden cross signals.

Vertiv Holdings (VRT): The invisible champion of data center infrastructure

Vertiv is a leading global provider of digital infrastructure, headquartered in Ohio, with operations in over 130 countries. The company focuses on designing, manufacturing, and servicing critical infrastructure for data centers, communication networks, and industrial applications.

The company’s 2023 performance is remarkable—EPS reached $1.77, up 233% year-over-year, with astonishing growth. The profit increase mainly stems from higher gross margins, and market expectations for 2024 still see over 30% growth. Additionally, Moody’s and S&P upgraded its credit ratings to Ba3 and BB respectively in December 2023, reflecting improved operational performance, strong cash flow, and expanded profit margins.

Although dividends increased in 2023, the dividend yield remains below 0.1% due to ongoing expansion and high capital expenditure, making it more suitable for investors with higher risk tolerance. Technically, the stock price has been stable within an upward channel this year, recently pulling back to the lower boundary, with MACD showing potential for a short-term golden cross. Short-term investors may consider positioning near the channel bottom, with a target of $110, and stop-loss if it breaks below the channel.

Oracle (ORCL): From software giant to cloud infrastructure operator

Oracle is a leading tech company that has actively expanded into data center business in recent years. In Q3 of fiscal 2024, it achieved cloud infrastructure and software services revenue surpassing software license revenue, marking a major transformation of its business model.

CEO Safra Catz stated in the March earnings call that the company plans to invest about $10 billion in data center expansion in the next fiscal year, significantly up from $7-7.5 billion this year. Chairman Larry Ellison painted a grand vision—the new AI data center in Salt Lake City is large enough to park eight Boeing 747s.

Although the company occasionally underperforms expectations, its EPS and revenue show steady growth. Benefiting from strong AI cloud service demand, the company forecasts double-digit revenue growth for FY2025. The CEO mentioned that as OCI capacity gradually catches up with demand, quarterly growth will accelerate compared to the previous quarter.

From a cash flow perspective, Oracle is a high-quality company driven by growth and cash generation. Although the dividend yield is only 1.4%, its stable dividend growth attracts many institutional and long-term investors. Technically, since 2023, the stock has risen nearly 80%, with a gap-up after the June earnings report. RSI has fallen back after overbought levels, so investors may look for short-term correction opportunities, with $130 as a support level.

Digital Realty Trust (DLR): A steady income earner in data center real estate

Digital Realty is one of the largest data center operators globally. Besides leasing space to enterprises, it also rents entire data center buildings to other operators, including peers like Equinix.

Compared to the recent downturn in commercial real estate, the outlook for data center real estate is much brighter. Industry demand is steadily rising, and once tenants deploy data centers, migration is difficult, creating sticky long-term income. These advantages are expected to attract funds previously invested in other REITs or fixed income, supporting stock price growth.

Additionally, Fed interest rate policies directly impact REIT valuations. Generally, REITs enjoy higher valuations during rate-cut cycles. Currently, global central banks are in a rate-cutting cycle, which is relatively favorable for REIT investors.

On the technical side, MACD and DMI signals indicate a pullback. Optimistic investors may consider positioning around $140 near the upward trendline, with an initial target of the previous high at $154. As the industry develops and interest rates change, the stock could rise to $180 or higher within the next two years.

NVIDIA (NVDA): The absolute leader in AI chips

NVIDIA is a leading global GPU and AI chip company, with a dominant market share. Its chips are widely used in servers and data centers, highly sought after for their performance. CEO Jensen Huang predicts the arrival of an era with millions of GPUs in data centers—future network or computing interactions may involve cloud-based generative AI.

The company maintains its technological edge through developing the CUDA parallel computing platform and programming model, enabling developers to fully leverage GPU computing power and accelerate applications.

Financially, after the AI wave exploded in 2023, NVIDIA’s orders surged, with free cash flow skyrocketing from $3.81 billion to $27.02 billion. Earnings have continued to grow over the past four quarters, significantly exceeding expectations. In May, the company announced that data center revenue increased 427% year-over-year to $22.6 billion, mainly driven by shipments of Hopper series GPUs, especially the H100 chip. The next-generation AI GPU “Blackwell” will bring even greater growth momentum.

On the technical side, the stock experienced two upward waves around the $45 level this year, but technical indicators are beginning to weaken. Coupled with market digestion of stock splits and executive share reductions, a consolidation period of several weeks is expected, similar to the end of the first wave. Investors may consider buying when the price falls below the 50-day moving average or after breaking above $140.

How to participate in server concept stock investments

There are various channels to invest in server concept stocks. Besides directly buying stocks, traders can also participate through Contracts for Difference (CFD), which is especially suitable for small traders seeking opportunities from short-term fluctuations, aiming for small capital to control larger positions; also suitable for those wanting to short. However, it is not suitable for investors who prefer large amounts of long-term holdings.

Advantages of CFD trading include the ability to go long or short; more importantly, it supports leverage—controlling larger positions with only a portion of the margin. This allows investors to participate in larger trades with less capital. However, higher leverage increases both potential gains and risks, so investors should carefully assess their risk tolerance and choose appropriate leverage levels.

Besides CFDs and direct stock investments, options, ETFs, and mutual funds are also options. Investors should choose the most suitable method based on their preferences and goals.

Future prospects and risks of server concept stocks

After the broad rise following the 2023 AI wave, many server concept stocks entered a correction phase in Q2 2024. However, since global tech giants, startups, and governments are all expanding computing capacity, the market expects a rebound and resumption of the upward trend in Q3.

Over the next five years, industry restructuring and淘汰 are expected. Absolute leaders like NVIDIA and Cisco, as well as rental-focused stocks like Digital Realty Trust, have higher certainty and are suitable for long-term,稳健 investment.

It is important to note that the prices of server concept stocks are influenced by multiple factors:

Market demand and industry trends Data processing, AI applications, and IoT development all impact valuations. For example, if the market expects NVIDIA’s EPS to grow nearly 100% this year and maintain high double-digit growth over the next two years, it could justify a very high P/E ratio exceeding 200.

Competitive landscape changes Industry competition directly affects product pricing. Increased competition may lead to price cuts, lower gross margins, and declining EPS, potentially causing significant stock price drops.

Company performance and leadership Investors are betting on both industry prospects and company profitability. Excellent leadership teams can break through technical bottlenecks, launch revolutionary products, generate huge profits, and drive stock prices to hundreds of times higher, as demonstrated by Apple under Steve Jobs and Tesla under Elon Musk.

Summary

The rapid growth in AI-driven computing power demand ensures a long-term positive outlook for server concept stocks. Market dynamics show that different periods favor specific subfields—such as power supply, cooling systems, REITs, and traditional data center construction. Therefore, server concept stocks remain a track worth long-term monitoring, with the key being to select companies with competitive advantages and certainty as core holdings.