There’s A Village Somewhere Missing an Idiot

17 comments

I normally try to deal in information, not punditry. But this morning I cannot fend off the impulse to share this opinion: When it comes to data centers, Jim Cramer is dumber than a bag of hammers.

Seeking to have something relevant to say in the wake of the Equinix-Switch and Data deal, Cramer decided to highlight the data center sector Thursday on his “Mad Money” show on CNBC. To demonstrate his familiarity with the sector, Cramer twice referred to Equinix as “Equinox.”

“Get out of the data-center stocks,” Cramer told viewers. “I think the data center industry is in decline. I see an industry that’s about to be brought low by new technology, so I think you should sell, sell, sell.”

New technology?
Which new technology? Cloud computing? Believe it or not, he means Nehalem processors. Cramer notes that on Intel’s recent conference call, the company touted strong sales for its new family of Nehalem DP processors for servers, one of which can “take the place of eight to nine older-generation servers.” Cramer did some math, and concluded that data centers will soon be seven-eighths empty.

“Data centers like Equinix will still have all this extra space on their hands that they’ll have no idea what to do with, thanks to Intel’s revolutionary server technology,” said Cramer. “These new servers go a long way towards making the data center model obsolete.”

Moore’s Law wasn’t invented yesterday. Processors have been getting faster and more powerful for decades without fundamentally altering the demand for data center space, which is driven by a profound, long-term shift toward the Internet and digital business models. That isn’t likely to change anytime soon. Nehalem processors will allow companies to do more with less, but they’re not going to empty out all the data centers. 

Here’s the video of Cramer’s comments: 

About the Author

Rich Miller is the founder and editor-in-chief 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.

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17 Comments

  1. "Sell, sell, sell" is perhaps a bit strong but I'd be wary about buying any more datacenter stocks right now - not exactly "safe as houses" (is that term still applicable after the financial crisis?) Sam

  2. Pat Bodin

    Cramer isn't exactly clued into anything. Cramer touted buy, buy, buy of Lehman Brothers right before it lost everything. Data Centers are and will continue to be on the rise. Cloud computing applications could be the next bust, but not DCs. That's not to say, some DC companies stocks are not overvalued, however Cramer is dead-wrong when it comes to the whole industry. I'm with you "dumber than a bag full of hammers". Another way to say that, "if I follow Cramer's advice I would have a million dollars today providing I started with 100 million dollars!" Ref: http://www.youtube.com/watch?v=Vi6bxKAAHzQ

  3. Cramer screws up the logic, but gets the message correct in my opinion. Getting out of the traditional data center stocks is a great idea. From the inside looking out, this is a VERY smart idea for investors. Having said that, before you liquidate and run, investigate the data center's vision and play for cloud. Having extra real-estate left over isn't a bad thing if you've increased your revenue per square foot by a factor of 10!

  4. Interestingly faster processors actually create the potential for higher profitability of cloud computing. Right now cloud computing is largely sold by purchasing blocks of either requests, cycles, or RAM (in MB or GB). Note only one of those is directly tied to the CPU. Faster CPU's mean data centers can sell more cloud computing per unit and per watt. That's lower cost for the same revenue. Or they can pass along some savings to the customers if a pricing war is created. That's just slightly different from "higher efficiency means companies can grow their business more, then reinvest more in computing". Either way, data centers and their suppliers have decent business lined up as long as the need to process information keeps growing.

  5. Ralph Bonskin

    I'd be careful about name calling. Cramer plays the buffoon on TV but is a Harvard graduate and smarter than 99% of the Blogsphere pundits.

  6. Ralph: I know full well that Cramer is a smart guy. That's why his approach to evaluating data centers is disappointing.

  7. I like how Cramer uses lots of animal images: animated, toys, etc to tell his story. I think my kid might like his show when trying to avoid commercials on the Sprout channel. Someone I know said those animals are probably some of this top advisers. Now that's due diligence! Anyone (in the sector) knows that tech nature does not abhor vacuums, it loves them. Once you tell your CIO (or he learns it from some "deck" presented at a seminar) that now you can stuff 512 virtual servers in the space that used to hold 4 physical ones, he won't be able to contain himself. So there's your cloud forming right there. Meanwhile, companies like Equinix and S&D don't just sit around waiting for people to buy rack space. There are several kinds of network services offered, and the more companies turn up the Twitter of the week, the more these network interconnection services sell. Cramer obviously has no idea how datacenters run when it comes to power and cooling. The LAST thing they want is to not have any more power to sell to people. In theory, if everyone junked their older servers and put in Nehalem (kudos to Intel marketing for convincing Cramer 'n' friends this is the first ever energy-efficient chip design) boxes, datacenters would be glad to have more power to sell to..you guessed it..more customers! But you gotta give him credit for catching one of this 'Equinox' references and pointing out that Equinox is a gym :)

  8. BillieN

    Being an insider in this industry I now question other advice Cramer gives. First, the Intel processors have continuously got better and cheaper and faster aka Moore's Law. The facilities have simply put more of them into the same space to deal with growth of Internet services. Second, EquiSwitch will be (as both companies have always been) more of an interconnect location than a traditional data center, so will probably be less affected by the CPU trends than hosting companies. Finally, you missed the most important part - with these two dominant competing companies merging, there will be no competition to keep prices down. Expect the prices to go up, the efficiencies to kick in and the profit to go up. Since IXes exhibit what economists call "Network Externality" (see a description of this dynamic as applied to IXes at http://drpeering.net/a/Ask_DrPeering/Entries/2009/5/7_The_Art_of_Peering__The_IX_Playbook_%28v0.9%29.html), the new company will be almost impossible to compete against with a startup.

  9. Austin

    Data center providers would do well to learn from the mistakes of the Telecom industry.

  10. Daniel Golding

    {I’d be careful about name calling. Cramer plays the buffoon on TV but is a Harvard graduate and smarter than 99% of the Blogsphere pundits.} He's an idiot and has made numerous bad calls, especially in tech, which he admits he doesn't understand. You evidently have no met enough Harvard grads if you are inordinately impressed by that particular bullet on his CV. He's not smarter than Rich (which is your suggestion), but he may, from your sock-puppety comment, be smarter than you.

  11. Brian

    Datacenters are not going anywhere. And everyone thinking the "Cloud" is going to be the end all be all of the future just doesnt see the forest for the trees. The cloud is a low cost, low reliability solution. There is a LOT of hype around the cloud and now that the rubber has hit the road it's clear the cloud is not the answer to all questions, only some. Data Centers are going to keep growing, and in fact I am seeing very positive growth and look to be double my datacenter space in the next 6 months. Moreover this video shows how little Jim knows about what Equinix offers. I am a customer of Equinix in 2 of their datacenters. Jim proved to me he clearly has NO CLUE what he is talking about when he tried to sum up Equinix's business model.

  12. ahh, suddenly I understand everything. As a cloud someone or thing, do I need to be watching irrelevant stuff so that I can reverse trade his visions? Obviously, if cloud does 1/5x then, in theory, we need 1/5dc OR we could do 5x the work. Seems like dc on a chip is the next big thing (I mean shorting the vision) Thanks for watching and reporting.

  13. Cramer=Fail

    Sigh, Cramer fails yet AGAIN. Why does he even have a TV show?

  14. colo provider

    did Cramer forget that he just did a piece on Dupont Fabros?

  15. Great call, Rich, as always. I've heard Cramer was interviewed once regarding some of the calls he made prior to the downturn, and he was both contrite and acknowledge his performance as poor at best. Reminds me of the "off the record" research folks who were telling the investment community that the sky was falling in '07 and '08 and all the while the industry was growing just fine. And the industry has grown in the face of numerous space and power reduction technologies. There are some vendors with legacy facilities that are going to have to make some hard choices, but that hardly spells disaster for colocation and data center real estate.

  16. Tim Traveny

    Here we are a year later and large data centers are still springing up everywhere. Yup...Watch'em...he's a Harvard Grad....Trying to get the investment prices to drop for his own gain no doubt.