• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

Cloud Data Center Construction Boom Is Good News for Chip and Hardware Suppliers

As cloud giants digest some of their past investments in hardware and chips, they're still investing heavily in growing their data center capacity. That's ultimately a positive for data center REITs and chip suppliers with cloud exposure.
By ERIC JHONSA
Sep 20, 2019 | 03:46 PM EDT
Stocks quotes in this article: GOOGL, CONE, DLR, EQIX, COR, NVDA, MU, WDC, ANET

While capital spending on the hardware going inside of cloud data centers has temporarily cooled this year, spending on data center construction still looks very strong.

Alphabet/Google (GOOGL) provided the latest evidence on Friday, when it announced that it's spending €3 billion ($3.3 billion) to expand its European data center footprint over the next two years. The announcement comes seven months after Google said it would invest $13 billion in the U.S. on data centers and offices in 2019.

Over the course of this year, Google has also announced plans for new data centers in Nevada, Utah, the Netherlands and South Korea. Meanwhile, in spite of this year's slowdown in data center hardware spend, CFO Ruth Porat has said on Alphabet's earnings calls that the company's total capital spending will rise this year -- albeit with a greater mix of data center spending relative to hardware spending.

Separately, Bloomberg reported on Thursday that data center real estate investment trust (REIT) CyrusOne (CONE) has received buyout interest from peer Digital Realty Trust (DLR) , as well as from investment firms EQT Partners and Colony Partners. The M&A overtures are said to be separate from the ones that led CyrusOne to start exploring a sale this summer.

If Digital Realty was to buy CyrusOne, it wouldn't be the company's first big acquisition in recent years. Last year, the company spent $1.8 billion to buy Brazilian data center owner Ascenty. And in 2015, it spent $1.9 billion to buy data center owner Telx.

In August, research firm IHS forecast that a whopping 14 million square feet of data center capacity would be added globally in 2019, via 135 projects to build new data centers and expand existing ones. The firm also noted that another 4.5 million square feet of capacity had already been announced for the first half of 2020.

Simply put, while many cloud giants have been spending less this year on servers, storage equipment and the chips that go inside of them, as they digest the capacity they built up amid a big 2018 spending surge, spending on actual data centers by cloud giants and independent data center owners, which is driven more by their long-term forecasts for infrastructure needs, has held up pretty well.

While hardware spending can fluctuate thanks to inventory swings as well as things such as the timing of new server CPU launches, the trends that have been driving giant data center investments aren't letting up. Among those trends: The growth of online video and other bandwidth-demanding services; the adoption of more compute-intensive algorithms to power services such as search engines and news feeds; large investments in both training AI models and deploying services relying on those AI models; and the ongoing adoption of cloud apps and infrastructures by enterprises.

All of this is naturally good news for data center REITs such as Digital Realty, CyrusOne, Equinix  (EQIX) and CoreSite Realty (COR) , which profit from cloud data center investments via both colocation services for hosting data center equipment as well as network interconnection services. And with the shares of these four companies up, respectively, 17%, 46%, 62% and 37% amid both strong industry demand and a favorable interest rate environment, markets definitely haven't failed to take notice.

The ongoing strength in data center construction is also, ultimately, good news for chip and hardware suppliers with strong cloud exposure -- think names such as Nvidia (NVDA) , Micron (MU) , Western Digital (WDC)  and Arista Networks (ANET) . While many of these firms have seen their cloud-related orders drop meaningfully this year, they might not have to wait too long before orders pick up, given the long-term infrastructure needs of the cloud giants and their commitment to making big data center-related investments.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Technology | Technology Hardware & Equipment |

More from Technology

How to Move on MongoDB

Bruce Kamich
May 20, 2022 2:19 PM EDT

Let's take a technical follow-up look at MDB -- and give a word of caution on this software name.

I'm Cautious on Marvell Technology Ahead of Earnings

Bruce Kamich
May 20, 2022 11:52 AM EDT

Let's review the charts and indicators.

If You're Looking for a Hero in This Market, Don't Look to Apple, ARKK

Ed Ponsi
May 20, 2022 10:30 AM EDT

Folks are asking if it's finally time to buy the ARK Innovation exchange-traded fund or Apple. Let's check the charts.

Don't Be in a Rush to Invest in Cisco

Stephen Guilfoyle
May 19, 2022 11:00 AM EDT

Someone already long this stock, who has taken a hit, doesn't need to liquidate unless...

Alteryx Has Yet to Bottom Based on Its Charts

Bruce Kamich
May 19, 2022 9:04 AM EDT

The technical signs indicate that the stock of the data analytics company still needs to build a base.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login