Data Center Supply Chain

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What are they

Data centers are centralized facilities that house an organization’s IT operations and equipment, enabling the management, processing, and storage of data. They serve as the backbone of modern digital infrastructure, powering everything from cloud computing and online services to critical business operations.

Comprising servers, storage-, networking-, and security-systems, data centers are designed to ensure high availability, scalability, and efficiency. For all of this they will require advanced cooling systems, robust power supplies, and redundancy measures to minimize downtime and maintain performance.

This week at Theta Bandits, rather than an individual Top Pick – we have chosen a sector and diving in on the supply chain for ideas that span multiple sectors with a common thread. This could bring one or many fresh ideas and potential winners to any portfolio.

Opinion

With the new US government taking the reigns with a strong mandate, a key piece of information that we are concerned with this week is the “Stargate” project, which is a partnership planning to invest up to $500 billion USD in artificial intelligence (AI) infrastructure over the next four years, with an initial commitment of $100 billion USD. The primary focus is on constructing massive data centers and the necessary energy generation facilities to support this development.

Looking above at what data centers are, we can see there is a lot going on in the space. We also know that if all goes according to plan this project has a runway for at least 4 years. We might not be able to call everything right, but let’s have a look at the pieces of the puzzle and you can judge what is a good fit for your portfolio based on your individual risk tolerance.

Breakdown

We will start with names in an area of the Data Center supply chain and dig into them with an explanation why they fit. We will not be able to capture them all but will provide a rough guide of where to look for further investigation into your trading journey.

EQIX:NASDAQ / DLR:NYSE

Equinix, Inc (EQIX) and Digital Realty Trust, Inc (DLR) are both examples of realty companies which specialize in creating space for and housing the data centers. This is core to which everything is built around and ensure that the facilities run successfully.

MSFT:NASDAQ / GOOG:NASDAQ / AMZN:NASDAQ

Microsoft Corp. (MSFT), Alphabet, Inc (GOOG), Amazon.com, Inc (AMZN) are examples of the companies who service the end users and typically will have many facilities each that might be run by the realty companies above. These companies will typically use the data centers for their cloud-computing (e.g. Azure, GCP or AWS) or online services (e.g. cloud storage) which service end users like you and me with which ever platform or eco-system we use.

DELL:NYSE

Dell Technologies, Inc (DELL) is a good example of a hardware provider, which provide the racks and racks of servers used to service the cloud-computing and online services above.

NVDA:NASDAQ / AMD:NASDAQ

Nvidia Corp. (NVDA) and Advanced Micro Devices, Inc. (AMD) provide the chips used in the servers to power software and AI in use above.

VRT:NYSE / FIX:NYSE

Vertiv Holdings, LLC (VRT) and Comfort Systems USA, Inc (FIX) seem like they do not fit in this supply chain. However, the heat generated by the sheer number of chips and servers continuously working requires A LOT of cooling. This is an important piece of the puzzle, or the facilities would overheat and fail.

OKLO:NYSE / SMR:NYSE

Oklo, Inc (OKLO) and NuScale Power Corporation (SMR) Is more of a future-proofing bet. MSFT, GOOG, AMZN have been investing in these types of companies to power their data centers in the future as these facilities are using more and more power with advancing AI. These companies are both involved in the Nuclear Energy Field in the creation of small modular reactors which can be used to provide power with a clean energy. While this is a new technology and an early entry, we still require traditional power to bridge the gap until this can be built, tested and scaled up.

XOM:NYSE / CVX:NYSE / OXY:NYSE

Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and Occidental Petroleum Corp. (OXY) round this out by being the power bridge mentioned above. All three of these names also provide natural gas, which is a method currently used to power these facilities.

The question remains, how are these traded? To see how, join our Theta Bandits Discord Community, a hub for traders to ask questions, share ideas and strategies on various other tickers daily. Traders in this community could potentially attack one or more of the same positions mentioned above using a variety of methods discussed in previous Top Pick Tuesdays – When we trade together, we learn together!

RISKS

We have a lot of information in this article; however, the stock market is never a sure thing, in any trading activity it is important to both secure profit and limit losses. Make sure to plan your trades with-in your risk tolerance and give the trade the time required to be successful, while setting and updating limits to mitigate risk and setting exit points for your position.

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Disclaimer: This article is for informational and educational purposes only, not investment advice. We recommend researching and consulting with a financial advisor before making investment decisions. All actions based on this information are at your own risk.