Tracey Ryniec is a Zacks Stock Strategist. She manages the Insider Trader and Value Investor services. Prior to joining Zacks, she litigated complex securities and insurance cases representing tech titans and Fortune 100 companies in San Francisco and Silicon Valley at the law firms of Brobeck, Phleger & Harrison -now defunct, a victim of the dot-com bust- and Cooley LLP. She can now be happily found covering value stocks for Zacks.com in Chicago, in addition to running her trading service portfolios. Tracey graduated from the University of Michigan with a degree in history. She attended Princeton University where she studied in the Near Eastern Studies department before graduating with a Masters in Middle Eastern Studies from the University of Chicago.
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00:00 Now, of course, running the boat and the driver right now,
00:03 NVIDIA, everyone was looking for it.
00:05 They still got the beat and data centers are really hot.
00:09 What's going on in this situation?
00:11 And where else can we be looking
00:13 for opportunities here in data center?
00:16 - Yeah, I feel, you know, the focus is on NVIDIA
00:20 and rightly so.
00:21 I don't think we've ever seen a large cap company like this,
00:27 you know, do what they're doing on both sales
00:30 and the earnings growth side.
00:32 Earnings expected to be up over 200% this year
00:35 and over 50% next year.
00:38 And that's before the analysts are even revising again.
00:41 So it'll probably pop up a bit more,
00:43 but valuation is pretty pricey on NVIDIA right here.
00:47 I am the value stock strategist.
00:49 So these are the things I look at
00:51 and I just can't stomach paying that much for NVIDIA,
00:54 but the AI and the data center side specifically for AI
00:59 is red hot 'cause those chips have to go somewhere
01:02 and they're going into the data centers.
01:04 So I tend to look at who else is gonna benefit from this.
01:08 And there are some other companies.
01:09 There's the ones who are gonna build the data centers,
01:12 right, those have to, they have to build them.
01:14 And then there's the side where
01:17 maybe you have to maintain it.
01:19 It needs services.
01:22 You have to cool it.
01:23 We just had a recent episode in Singapore
01:26 where one of the data centers caught on fire
01:28 and a couple of the large banks,
01:31 the largest banks in the world said,
01:32 "Hey, you can't, you know,
01:35 "we can't do any transactions right now."
01:37 And I initially thought that was like a cyber attack,
01:39 but no, it turned out to be this fire in the data center.
01:43 So the cooling of the data centers is very important
01:46 using all this AI uses a ton of data.
01:50 So yeah, I would look outside of Nvidia
01:54 for a play on the data centers.
01:56 And one way to do that
01:58 is through a couple of companies actually.
02:00 You can look at the construction side
02:02 with a company like Sterling Infrastructure,
02:05 that's ticker S-T-R-L.
02:08 And it's a big,
02:10 it does everything on the infrastructure side though,
02:12 which I also like.
02:14 So we have the big infrastructure bill going on right now.
02:18 And that's gonna spread out for the next several years.
02:20 This is the trillion dollars that they're spending.
02:23 So it's not just going to the rails or the new bridges,
02:27 it's also going to things like broadband rolling out
02:30 in the rural areas.
02:31 They're spending, I think it's 500 billion
02:34 just on the broadband rollout.
02:35 So a company like Sterling will be a beneficiary of that.
02:40 And you can see from even just the chart
02:43 how much it's taken off
02:44 because we're getting a lot of the spending this year.
02:48 And it's a relatively cheap stock,
02:50 especially compared to Nvidia.
02:53 And then on the cooling side,
02:55 you might wanna look at something
02:57 like Modene Manufacturing, ticker M-O-D.
03:01 They're expected to see big jump in earnings this year
03:04 and next year.
03:05 They used to do a lot of cooling for autos,
03:10 but they also do cooling for commercial enterprises
03:14 like HVAC stuff.
03:15 And one of their big areas right now, surprise, surprise,
03:19 is the data centers.
03:20 And they talk about it on each of their last conference
03:24 calls, the last couple, they've mentioned the data centers.
03:26 Now they do have another segment of the business.
03:29 So it's not all data centers,
03:31 but the data centers is driving Modene.
03:35 You can see the charts look kind of similar
03:37 to what we're seeing with Nvidia,
03:39 but it's kind of like these hidden companies.
03:43 And then a third one you might wanna look at
03:45 is on the services side, and that's Vertiv.
03:49 I know this one's a little more well-known out there.
03:52 VRT is the ticker with that one.
03:55 I just recently bought this one for my own portfolio,
03:58 but I've owned it for most of this year
04:02 in Zach's value investor portfolio.
04:06 It's gotten a little more expensive,
04:08 but this is another one that's kind of mirroring Nvidia.
04:12 Even on the earning side, so everybody's going like,
04:15 "Oh, Nvidia earnings up over 200% this year,"
04:18 but so is Vertiv's because of the data centers
04:22 and their business is really booming in that.
04:25 And they've been beating and raising,
04:27 I think the last two quarters at least,
04:29 they've beaten and raised.
04:30 So I kind of, I look at Nvidia's earnings,
04:33 and then I expect in a couple months
04:36 when we get Vertiv again,
04:38 that they're gonna kind of mirror what Nvidia is saying,
04:41 because so far that's been the case.
04:44 They've been moving in tandem.
04:46 So those are just three.
04:48 There's gonna be others
04:49 that are also in these similar businesses,
04:52 but those are three I just managed
04:54 to stumble across this year
04:55 because those earnings have really turned around
04:59 and we're seeing the big growth on the earning side,
05:02 which really isn't showing up
05:03 in most other industries out there,
05:06 but the data centers, that's where it's at.