Cooling needs and more: Jefferies names global stocks to buy driven by AI data center demand
Tech companies have been capitalizing on the artificial intelligence boom, driving the development of products and services in that area. That also means that AI data centers are growing fast — as is the demand for them. Data centers house vast amounts of computing power needed for AI workloads. That in turn is set to drive up the demand for cooling systems for data centers. “AI proliferation makes heat dissipation attractive. We believe the demand for liquid cooling for AI data centers should sustain for the following 5-10 years, driven by continuous iteration of AI chips and rising heat dissipation requirements,” Jefferies said in a Sept. 10 report. Cooling services have been said to improve power efficiency in data centers and, by extension, cost efficiency. Jefferies estimated that given this cost efficiency, the total addressable market for global liquid cooling is set to rally from $997 million in 2023 to $27.8 billion in 2030. That represents a 61% compound annual growth rate (CAGR), it said. In China, the development of liquid cooling has “fallen behind,” Jefferies said. But it expects two factors to drive it this and next year. The first is the stricter power usage efficiency requirement put in place by China’s government. Second, Chinese digital communications giant Huawei’s graphics processing unit capacity should more than double in 2025 and 2026, according to the investment bank. Cloud solution providers’ capital expenditure in China should also recover, said Jefferies. That should cause the data center cooling solutions’ total addressable market’s CAGR to grow 13% between 2023 and 2030. Of that, liquid cooling should deliver 66% CAGR in the same period, said Jefferies. Stock picks Jefferies named three global buy-rated stocks that are set to benefit from the cooling trend and more within the data center space. Schneider Electric : Jefferies said it expects the French firm to be the “biggest beneficiary” of AI or data center-driven demand — of all European firms in this segment. “Given its comprehensive portfolio, benefiting from demand for all kinds of products in the space, we think Schneider’s data centre business should clearly grow from these levels,” Jefferies wrote, adding that the firm has “among the most comprehensive” products in the data center space. Envicool Technology : Jefferies expects data center cooling sales in Southeast Asia to contribute one-third of such sales for the Chinese firm. It predicts the firm will deliver 56% earnings per share growth, up from 42% previously. Megmeet Electrical: Megmeet is one of four qualified power supply unit suppliers for Nvidia’s servers, Jefferies noted, adding that it expects the Chinese firm to receive PSU (power supply unit) orders for Nvidia servers by end-2024 and to start delivery in 2025. Sales of the firm’s AI server PSUs could be worth 2 billion yuan ($2.8 million) in the long run, Jefferies said. — CNBC’s Michael Bloom contributed to this report.
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