The rise of artificial intelligence could revolutionize data center stocks, according to Bank of America. Analyst David Barden wrote in a Thursday note that “AI could evolve to be the largest data center growth opportunity since the cloud,” and added that growing demand for computing will underpin the expansion. The analyst highlighted Nvidia’s exceptional first-quarter earnings beat in May as a key turning point for investor excitement over AI. From the first quarter to the second, mentions of AI rose 95.6% among S & P 500 companies. Barden expects that interest will soon spill over to data center firms. “This latest AI evolution will likely lead to widespread new opportunities and use cases across every industry,” Barden said. “Investors have, rightly in our view, zeroed in on data centers as the emerging ‘home’ where AI will live and grow.” To play the growth of AI in the data center segment, Barden pointed toward Digital Realty Trust and Equinix . Shares have climbed 30% and 18% from the start of the year, respectively. Digital Realty is organized as an umbrella partnership real estate investment trust (UPREIT), while Equinix focuses on network communications throughout data centers. Barden maintains a $132 price target for Digital Realty, or roughly 2% upside from Wednesday’s $129.98 close. The analysts holds an $850 per share price target on Equinix, or about 11% upside from Wednesday’s $767.91 close. Shares of Digital Realty and Equinix have soared roughly 50% and 13% since Nvidia’s May 24 earnings report. The companies have a stronghold on both training and inference, which Barden said are key computing elements of generative AI programs. Training refers to the AI model’s ability to learn from a large tranche of data, while inference allows the AI to answer third-party questions. “DLR and EQIX are positioning themselves to address the incremental demand from both Training and Inference,” Barden said. “While it is not a meaningful contributor today to either, they both view AI as a revenue growth accelerant in the future.” In the short-term, Barden said Equinix is best positioned to take advantage of inference opportunities, while Digital Realty can capitalize on large AI model training. — CNBC’s Michael Bloom contributed to this report.
