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From gaming to video editing to productivity to complex AI experiences, computing systems today are being asked to do more than ever. There is a massive economic boom happening with data centers to the tune of hundreds of billions of dollars. These data centers create the processing power needed for the artificial intelligence revolution, other high-performance computing applications and even mining Bitcoin. The data center boom has been the key driver of NVIDIA‘s () ascent of nearly 200% in the past year alone!CPUs and GPUs have a lot in common. Both are critical computing engines. Both are silicon-based microprocessors. And both handle data. But CPUs and GPUs have different architectures and are built for different purposes.The CPU is suited to a wide variety of tasks, especially those for which latency or per-core performance is important, such as web browsing. A powerful execution engine, the CPU focuses its smaller number of cores on individual tasks and getting things done quickly. This makes it uniquely well-equipped for jobs ranging from serial computing, where only one task is executed at a time on a single processor, to running databases.GPUs began as specialized application-specific integrated circuits (ASICs) designed for a specific purpose, such as accelerating specific 3D rendering tasks. Over time, these fixed-function engines became more programmable and more flexible. While graphics and hyper-realistic gaming visuals remain their principal function, GPUs have become more general-purpose parallel processors, handling a growing range of applications, including AI.To give you an idea of how fast demand for artificial intelligence has been growing, consider that Chat-GPT reached 100 million users faster than any other network. It took just 2 months to reach this milestone, versus 9 months from TikTok, 2.5 years for Instagram and 4.5 years for Facebook. The number of data centers in the U.S. has doubled in three years and there are no signs of demand for processing power slowing anytime soon.(Click on image to enlarge)
Amazon () recently announced that it will invest several billions more in UK-based data centers. Microsoft announced that it plans to invest $1.3 billion in Mexico to “enhance AI infrastructure”. Microsoft also announced that it will raise $100 billion to invest in AI infrastructure. AI momentum remains incredibly robust as we are still in the early stages of this nascent industry.Many investors focus on investing in the servers and chips that run data centers and this has been a profitable strategy. They manufacturers of graphics processing units (GPUs) have done well in particular. NVIDA has been consolidating for a few months and will likely make another break higher in the months ahead.Other semiconductor chip makers like Taiwan Semiconductor (), Advanced Micro Devices () and Micron Technology () have also generated substantial gains in the past year, with TSM up 111%, AMD up 68%, and MU up 62%. These gains have significantly outpaced the wider market and even the technology sector that they reside within.In the AI server space, Dell Technologies ()and Super Micro () have also benefited from the data center boom, up 71% and 82%, respectively, in the past 12 months. I think Dell has more upside potential, but both stocks should continue to perform well as demand for servers remains red hot. Dell recently returned to S&P 500 after a decade-plus hiatus. Dell Technologies Q2 Non-GAAP EPS of $1.89 beat expectations by $0.18. Revenue of $25B (+9.2% Y/Y) beat forecasts by $910M.A lesser known name in the space gained attention earlier this month when NVIDIA agreed to invest in a $160M financing round for the company. Shares of Applied Digital () shot up 50% on the news and the data-center/AI cloud firm is up roughly 70% in the past month alone. They have created new purpose-built HPC data centers that are advantageous compared to retrofitting older facilities to make them AI-ready. They also have experience with Bitcoin mining to help maximize efficiency. The company is generating significant revenue, but still operating at a loss. The share price is up 55% in the past year and likely has more upside.Another interesting way to invest in the exploding demand for computer processing power to run Artificial Intelligence and other high-performance computing (HPC) applications is through investing in Bitcoin mining companies that have divided their resources between Bitcoin mining and high-performance computing. Bitcoin miners are increasingly pivoting to artificial intelligence (AI) data center operations, leveraging their existing infrastructure and expertise to capitalize on the growing demand for AI computing. They were a bit ahead of the curve, as crypto adoption came well before AI adoption.The only downside is that Bitcoin miners use ASIC’s (application-specific integrated circuits), which are built specifically for solving the algorithms that mine cryptocurrency and not for running artificial intelligence applications. Still, it is much easier for a Bitcoin mining company to swap out some old ASICs and utilize the rack space for GPUs and servers that power AI than it is for a company to start from scratch. Most of the infrastructure is already in place, including power systems, cooling systems, energy contracts, wiring, and the intellectual capital to operate the data centers. This move also allows them to diversify revenue streams and take advantage of market cycles.One such example is HIVE Digital Technologies (), a company that converted their GPUs from mining Ethereum to HPC applications once Ethereum transitioned from proof-of-work to proof-of-stake. Another is Core Scientific (), which went through bankruptcy during the crypto bear market, restructured and has re-emerged as not only a more efficient Bitcoin miners, but as a desired HPC play. Shares of CORZ have rocketed higher largely in response to the company’s efforts in the AI datacenter space and a buyout offer from its primary HPC services client, CoreWeave. CORZ is up 260% in the past 6 months and 740% year to date.Finding the Picks-and-Shovels Plays for Data CentersI like taking the “picks and shovels” approach to investing in the emerging artificial intelligence sector. This is a reference to all of the entrepreneurs that became wealthy supporting those participating in the gold rush by selling things like picks and shovels, rather than searching for the gold themselves. Instead of buying the big names that everyone knows and bids up to ridiculous P/S ratios, I have been recommending companies that provide the critical components for AI data centers and robotics companies. This might include power systems that increase efficiency, heat transfer systems, switching modules, fiber optic cables, etc.Many of the stocks mentioned above are worth tens of billions of dollars. A few of the Bitcoin miners have smaller valuations, but aren’t exactly picks and shovels plays. Let’s instead turn to a fewcompanies that make the components that HPC data centers need to operate.Celestica () – The company benefits from AI tailwinds with a sizable footprint in the industry by offering hardware for data centers. It has recently unveiled a new SC6100 all-flash storage controller and their high-performance 800GbE switch, delivers speed and agility for data center and enterprise-class access deployments. This brings a powerful and flexible solution that meets the high demands of these fields. The company is expanding their factory in SE Asia and repurchasing shares at a rapid rate. CLS is up 75% year to date and has a strong buy rating in our quantitative ratings.Credo Technology Group () – Credo Technology is a leader in the high-speed connectivity market, with AI and data center expansions driving rapid business growth. They supply comprehensive Ethernet connectivity solutions, copper interconnect cables and optical digital signal processors, which are all essential for connecting hardware devices within data centers. Analysts expect their AI-related revenue to double next year. Shares are up 60% year to date and they have a buy rating in quant analysis.The chart is in a clear uptrend with recent support holding strong at the 200-day exponential moving average. We have seen a series of higher highs and higher lows recently and the RSI momentum indicator shows room to continue higher. The share price is down around 20% from the August highs.
Here is a quick summary of the 12 stocks that we have highlighted to profit from the boom in data centers and artificial intelligence:
Lastly, I think it is smart to wait for pullbacks to enter positions in data center stocks as the sector tends to get overheated and there is plenty of volatility. Especially with the current geopolitical tensions ensnaring the globe, the upcoming US Presidential election, the dockworkers strike, the aftermath of Hurricane Helene and other factors, investors with the patience to enter during pullbacks are likely to generate substantially better returns.More By This Author:Silver Demand To Soar With Breakthrough Of Samsung Silver Solid State Battery 4 Major Catalysts That Will Push Gold Above $3,000The Crypto Bull Market Is Just Getting Started
