Artificial intelligence has created a boom helping more than just
Nvidia
sell more microchips. Data centers are fueling growth for a host of companies, beyond the chip giant, and the growth isn’t slowing down.
“It’s like a production site for data,” says
Schneider Electric
CEO Peter Herweck, adding that the chips running all those AI models and algorithms require four or more times the power and infrastructure to operate than traditional server farms hosting, say,
Netflix.
Nvidia’s data-center business generated $14.5 billion in third-quarter sales, up 279% year over year. Growth for Paris-based Schneider is like that. Still, it’s one of the biggest electric hardware and software suppliers required to build and run data centers. That includes medium voltage, low voltage, and cooling products as well as uninterruptible power supplies, among many other things.
Sales in 2023 amounted to almost $39 billion. Sales have grown by about 8% yearly for the past three years.
“If you look at some of the big demand drivers for us, in the U.S. at the moment, it’s the world of data centers,” he adds. About 21% of Schneider’s business was derived from data centers in 2023, up from 19% in 2022. Herweck projects that share to increase with his company’s data-center business growing at double-digit percentage rates for the next few years.
Schneider has “industrialized” data-center design and production, says Herweck. That means “higher quality, lower costs, higher repeatability [and] less mistakes.”
While the data-center boom is a boon for Schenider. Competitors such as
Eaton
benefit too.
Vertiv Holdings
and
nVent Electric
also make hardware and software critical to data-center design and operation.
It isn’t exactly a secret that Schneider shares and the other three stocks benefit from the data-center boom. Coming into Wednesday’s trading, Schneider’s U.S.-listed American depositary receipts were up 34% over the past 12 months. Eaton, Vertiv, and nVent shares were up 62%, 306%, and 38%, respectively, over the same span, while the
S&P 500
and
Nasdaq Composite
were up about 24% and 36%, respectively.
Vertiv has gained the most, but shares were trading for about 26 times next year’s earnings at the end of 2022. Now they trade for about 28 times estimates. Earnings have just grown that fast.
It’s a similar story for the other three. There has been a little more multiple expansion, though. Eaton stock trades for about 27 times estimated 2024 earnings per share; at the end of 2022, shares traded for about 21 times. nVent stock trades for about 19 times estimated 2024 earnings per share; at the end of 2022, shares traded for about 16 times. Schneider stock trades for 24 times estimated 2024 earnings per share; at the end of 2022, shares traded for about 18 times.
Those higher valuation multiples will probably be safe as long as Nvidia keeps putting up monster quarters. Nvidia reports third-quarter earnings on Wednesday evening. Wall Street expects its data-center business to generate $17 billion in sales, up from $3.6 billion a year ago.
Nvidia stock trades for about 32 times estimated 2024 earnings per share; Shares traded for 43 times at the end of 2022.
Write to Al Root at [email protected]
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