3 Data Center Stocks Powering the Internet’s Backbone

The data center market is growing rapidly due to rising demand for cloud computing, artificial intelligence (AI), and data storage. Increased investments from tech giants, AI-driven workloads, and expanding digital infrastructure needs are fueling growth.

Hence, adding fundamentally sound data center stocks Micron Technology, Inc. (MU), GDS Holdings Limited (GDS), and VNET Group, Inc. (VNET) to your watchlist could be wise for potential advantages.

Statista projects revenue in the data center market to reach around $452.50 billion in 2025, where most revenue is expected to be generated in the United States, reaching $137.50 billion in the same year. Further, the revenue in the global market is expected to exhibit growth at an 8.4% CAGR, resulting in a market value of $624.10 billion by 2029.

Besides, internet data centers are becoming more and more critical for businesses of all sizes to manage data amid the rapid digital transformation of enterprises. Such data centers play a significant role, allowing providers to offer scalable and accessible cloud services to clients and backing up internet services.

The growth of cloud computing has greatly aided the IDC market's growth. IDCs play a significant role in helping Cloud Service Providers (CSPs) house their servers, storage, and networking hardware, allowing them to offer scalable and accessible cloud services to clients all over the world.

Further, as data centers power innovative technologies like AI, cloud services, and e-commerce, their role in the market is continuously expanding. And with its ability to evolve quickly, the application of data centers across various segments like education, entertainment, e-commerce, and telehealth will grow and dominate.

Further, another key trend fueling the market growth is the adoption of hybrid and multi-cloud strategies. Such dynamics are evidence that the data center industry is peaking and will continue the trend in the future.

Considering the industry’s bright prospects, watching fundamentally strong data center stocks MU, GDS, and VNET could be wise.

Let’s discuss the fundamentals of these stocks in detail:

Micron Technology, Inc. (MU)

MU designs, develops, manufactures, and sells memory and storage products internationally. The company operates in four segments: Compute and Networking Business Unit; Mobile Business Unit; Embedded Business Unit; and Storage Business Unit.

On January 7, 2025, MU expanded its strategic collaboration with Pure Storage® (PSTG), the IT pioneer that delivers the world's most advanced data storage technology and services. The strategic partnership enables the high-capacity and energy-efficient solutions that hyperscalers require using Micron G9 QLC NAND for future DirectFlash® Module products.

For the first quarter of fiscal 2025, which ended November 28, 2024, MU’s revenue increased by 12.4% quarter-over-quarter to $8.71 billion. Its operating income grew 42.8% from the prior quarter to $2.17 billion. The company’s net income and EPS came in at $1.87 billion and $1.67, up 110.8% and 111.4% from the prior period, respectively.

Analysts expect MU’s revenue and EPS for the second quarter (ending February 2025) to increase 36.2% and 243.6% year-over-year to $7.93 billion and $1.44, respectively. Moreover, MU surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

MU’s stock gained 8.9% year-to-date and 7% over the past year to close the last trading session at $91.68.

MU’s robust outlook is reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a B grade for Growth and Value. MU is ranked #29 of 90 stocks within the Semiconductor & Wireless Chip industry.

To see additional POWR Ratings of MU for Stability, Sentiment, Quality, and Momentum, click here.

GDS Holdings Limited (GDS)

Headquartered in Shanghai, China, GDS develops and operates data centers. It provides colocation services comprising critical facilities space, customer-available power, racks and cooling, managed hosting services, and consulting services. It serves cloud service providers, large Internet companies, financial institutions, telecommunications, and IT service providers.

GDS’ trailing-12-month EBIT margin of 8.48% is 57.3% higher than the industry average of 5.39%. Likewise, the stock’s trailing-12-month CAPEX/Sales of 70.82% is significantly higher than the industry average of 2.16%.

For the third quarter that ended September 30, 2024, GDS reported total net revenue of $422.61 million, up 17.7% from the prior year’s quarter. Its adjusted gross profit increased 20.4% year-over-year to $214.08 million. The company’s income from operations came in at $45.64 million, reflecting growth of 296.9% over the prior year’s quarter.

In addition, the company’s adjusted EBITDA grew 15% year-over-year to $184.64 million.

Street expects GDS’ revenue for the fourth quarter (ended December 2024) to grow 20.6% year-over-year to $427.04 million. The company’s revenue for the fiscal year 2024 is expected to increase 14.1% year-over-year to $1.57 billion. Also, it has surpassed consensus EPS estimates in each of the trailing four quarters.

Over the past six months, GDS’ stock has gained 199.7% and 448.3% over the past year to close the last trading session at $34.43.

GDS’ sound fundamentals are reflected in its POWR Ratings. The stock has an A grade for Sentiment and a B grade for Growth. Within the A-rated China industry, GDS is ranked #37 of 42 stocks.

Click here to access additional ratings of GDS for Quality, Stability, Value, and Momentum.

VNET Group, Inc. (VNET)

Based in Beijing, China, VNET is an investment holding company that provides hosting and related services. The company offers managed hosting services consisting of managed retail services, interconnectivity services, and value-added services like hybrid IT, bare metal, firewall, server load balancing, data backup and recovery.

On November 28, 2024, VNET executed a definitive agreement with Dajia Investment Holding Company Ltd., a wholly owned subsidiary of Dajia Insurance Group, to form a pre-REITs fund aimed at investing in hyperscale data centers in mainland China.

The initiative marked a significant milestone for China's data center sector, following the growing trend among institutional investors to channel investments into new infrastructure projects in China.

In the third quarter that ended September 30, 2024, VNET’s net revenues grew 12.4% year-over-year to $302.21 million. Its gross profit rose 60.4% from the year-ago value to $70.06 million. The company’s operating profit increased 494.7% from the prior year’s quarter to $27.27 million.

Furthermore, net income attributable to VNET and EPS came in at $45.26 million and $0.01, against a net loss of RMB 50.46 million ($6.90 million) and $0.00821 in the prior year’s period, respectively.

Street expects VNET’s revenue for the fiscal year (ending December 2025) to increase 11.1% year-over-year to $1.23 billion. Likewise, for the same year, its EPS is expected to grow 315.6% year-over-year to $0.13.

Shares of VNET have gained 509.7% over the past six months and 625% over the past year to close the last trading session at $11.31.

VNET’s POWR Ratings reflect its bright prospects. VNET has a B grade for Growth. It is ranked #59 among 78 stocks in the B-rated Technology - Services industry.

Click here to access additional VNET ratings for Value, Stability, Sentiment, Quality, and Momentum.

What To Do Next?

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MU shares were trading at $95.58 per share on Thursday afternoon, up $3.90 (+4.25%). Year-to-date, MU has gained 13.57%, versus a 3.97% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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