Data Center Stocks Still Beating Dow

Data center stocks were among the best performing sectors during 2006 and continued to outperform the broader market in the first half of 2007. The recent market volatility has tested the staying power of data center shares, resulting in a more mixed picture. An analysis of the year to date shows that the majority of companies we track managed to outperform the Dow Jones Industrial Average, which is 5.3 percent higher for the year.

There are several high fliers, but these are primarily special situations – either recent IPOs like VMWare (VMW) and BladeLogic (BLOG) or companies that have accepted takeover offers and are waiting for the deals to close, a group which includes Opsware (OPSW) and Infocrossing (IFOX).

Once we look beyond the IPOs and deals, the strongest performers continue to be the data center operators that are expanding their facility networks to meet the demand for new space. These include Equinix (EQIX), NaviSite (NAVI), Savvis (SVVS) and Digital Realty Trust (DLR), which are all up between 10 and 17 percent for the year. That trend doesn’t hold true across the board, however, as shares of Terremark (TMRK), Switch and Data (SDXC) and Internap (INAP) are now in the red for 2007.

The biggest change has been the shift in investor sentiment regarding content delivery networks (CDNs). Akamai (AKAM) shares took a beating last month after failing to meet analysts’ expectations, after which IPO sensation Limelight Networks (LLNW) was pummeled after lowering its revenue guidance. While some industry watchers express concern about a CDN price war, others say the underlying business remains strong.

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About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.