Growing AI Demand Brings More Support for These Holdings
AI continues to drive data center demand and Big Tech spending is expected to continue.
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On Thursday night, data center real estate investment trust (REIT) Digital Realty Trust DLR reported its September quarter results. In reviewing management’s comments about the company’s development pipeline, new lease growth and backlog levels, they offer another supporting perspective for the investment spending we’ve been hearing from Big Tech and other companies. That’s especially true for AI, which Digital Realty shared was a “significant” contributor at roughly 50% of its overall bookings for the quarter. That brings another layer of confirmation for our holdings in Nvidia NVDA, Marvell MRVL and Eaton ETN.
Here are some of the earnings call comments that stood out to us:
“Demand for data center capacity remains strong, both for larger capacity blocks in our core markets and to support continued growth in both cloud and digital transformation.
“The total leasing into our facilities at 100% share was in excess of $700 million in the third quarter, demonstrating the significant appetite for data center capacity.
“…our development pipeline increased by nearly 50% sequentially to 644 megawatts under construction and is now 74% pre-leased, up from 66% at the end of 2Q.
“$521 million of new leases signed at Digital Realty share, more than double our prior record in the first quarter of this year.
“...backlog at Digital Realty share increased by more than 60% sequentially to $859 million at the end of September, as new leasing dramatically outpaced $180 million of record commencements in the quarter.”
SK Hynix Brings More Data Center Support
Building on those Digital Realty comments, South Korean memory company SK Hynix reported record-breaking September quarter results that it attributed to continuing demand for AI memory products from data center customers. Sales of its high-bandwidth memory (HBM) rose more than 70% compared to the previous quarter and 330% versus the September 2023 quarter. Those sales of HBM accounted for approximately 30% of total DRAM revenues during the quarter, a figure which is expected to rise to 40% in Q4 2024
During SK’s earnings call, it gave us reason to think when Meta META, Amazon AMZN, Alphabet GOOGL, Microsoft MSFT and others report next week, we could see them boost capital spending levels further:
“The server market is expected to see significant demand growth, especially for AI servers, as big tech companies are continuously investing in order to capture the AI market. The scale of investments from major big tech companies this year has increased compared to initial forecasts, and despite some concerns over delays in monetization, the likelihood of reducing spending in AI servers appears low.”
In the past, we’ve seen the shares of those Big Tech companies trade-off in response to upsized capital spending levels. Should we see that pattern repeat, it could bring an opportunity for us to pick up more shares, especially for META where the Portfolio’s position is on the smaller side despite being a very profitable one.
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At the time of publication, TheStreet Pro Portfolio was long NVDA, MRVL, ETN, META, AMZN, GOOGL and MSFT.
