Switch and Data, Internap Top 4Q Winners

Rounding out our year-end review of data centers in the financial markets, here’s a look at the top performers for the fourth quarter of 2009. Colocation provider Switch and Data (SDXC) was the best-performing data center stock of the quarter, as it agreed to be acquired by rival Equinix (EQIX) for a significant premium.

The fourth quarter also brought some joy for the shareholders of Internap Network Services (INAP), as the turnaround strategy implemented by new president and CEO Eric Cooney appears to be winning favor with investors. The company’s stock has taken its lumps in recent years amid struggles with its content delivery business. Internap cut costs and staff shortly after Cooney’s arrival, and is in the process of repositioning its data center network to reduce its reliance on third-party colo providers.

Here’s a look at the winners and loser in the data center industry in the fourth quarter of 2009.

Remember to track our Data Center Investor channel for performance updates on data center companies. For tracking individual stocks, you can use the “Companies” link in our navigation bar, or just type the company’s ticker symbol into our search box.

Tracking Cramer’s ‘Data Center Doomsday’ Call

Last Oct. 22 stock pundit Jim Cramer warned his legions of CNBC viewers that the data center industry was ripe for a major fall. “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.”

Our response at the time: “When it comes to data centers, Jim Cramer is dumber than a bag of hammers.” (See There’s a Village Somewhere Missing an Idiot for the full story).

So how did Cramer’s prediction turn out? If you sold all your data center stocks, you’re probably regretting it. Nine of the 13 publicly-held companies we track in our Data Center Investor chart have gained in value since Cramer’s Oct. 22 call, including five stocks with double-digit improvements in that short time. Those include Equinix (EQIX) and Switch and Data (SDXC), whose merger announcement prompted Cramer’s prediction of Data Center Doom.

2009: Stellar Year for Data Center Stocks

As the stock market rebounded in 2009, few sectors bounced better and higher than the data center industry. Share prices of many key players in the sector finished with triple-digit gains for the year, while even the laggards easily outperformed the major indices.

At the close of 2008, the share prices of many providers were battered amid credit worries and concerns about the capital-intensive nature of the data center business. But companies continued to invest in mission-critical infrastructure, and established players were able to find expansion financing amid the credit crunch.

All of the companies we track in our Data Center Investor performance chart managed gains of 53 percent or better for the year. Meanwhile, the Dow Jones Industrials rose 18.8 percent, the S&P 500 added 23.5 percent, and the NASDAQ 100 improved by 43.9 percent. Here’s a look at the year’s top performers:

Leading the pack was DuPont Fabros Technology (DFT), one of the real estate investment trusts focused on the data center sector.

There’s A Village Somewhere Missing an Idiot

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.

Investing: Data Center Stocks Soar

The second quarter of 2009 saw exceptional returns for leading public companies in the data center sector, as virtually the entire industry outperformed the major indices and several players posted triple-digit gains.  

The biggest gains for the quarter ending June 30 were seen in the shares that were battered in recent quarters, including Navisite (+242 percent), Terremark Worldwide (+115 percent), and Savvis and Rackspace (each up 85 percent). By way of comparison, the  Dow Jones Industrials gained 11 percent in the second quarter, the best showing for the bellwether index since 2003.

The sector’s strong results hold up when we look at the first half of 2009.

Cisco Added to Dow 30

Cisco Systems (CSCO) has been added to the Dow Jones Industrial Average, the 30-stock index that has become the best-known metric for the U.S. stock markets. Cisco will replace General Motors, which was removed from the index this morning after filing for bankruptcy protection. Travelers Insurance was also added, replacing Citigroup. The Dow 30 is managed by the editorial board of The Wall Street Journal.   

Shares of Cisco were up nearly 5 percent in early trading. Companies that are added to major indices typically see a bump in their share price due to their increased visibility and  mandatory buying from index funds that mirror key indicators.

Savvis Leads Data Center Stocks Higher in April

April was a huge month for data center stocks, led by shares of Savvis Inc. (SVVS), which soared 83 percent as it showed progress boosting profit margins. Savvis was hardly alone, as 10 of the 13 stocks we track scored double-digit gains and seven were at least 20 percent higher. That put virtually the entire sector ahead of the Standard & Poor’s 500, which climbed 9.4 percent in April, its best performance since March 2000 at the peak of the dot-com bubble. Other big gainers included Limelight Networks (LLNW) , which was 46 percent higher for the month following the reversal of an adverse judgment in its patent battle with Akamai, and colocation providers Terremark Worldwide (up 44 percent) and Switch and Data (up 32 percent). Here’s the full list of April performance for key public companies in the data center sector.

Remember to track our Data Center Investor channel for performance updates on data center companies. For tracking individual stocks, you can use the “Companies” link in our navigation bar, or just type the company’s ticker symbol into our search box.

Analyst Upgrade Boosts Rackspace

Managed hosting provider Rackspace Hosting (RAX) gained ground on Wall Street Tuesday after Goldman Sachs raised its investment rating on the stock. Shares of Rackspace closed at $8.38, up 96 cents for a gain of 13 percent on the session.

Goldman changed its rating on Rackspace from neutral to “buy,” citing the company’s execution in a difficult environment and efforts to raise raising investor awareness of its accomplishments. “We believe that over the year, investors will give Rackspace more credibility as it executes against its longer-term strategy and contains costs,” the analysts wrote.

Yesterday’s gains came on top of Rackspace’s performance in the first quarter of 2009, when it gained 39.4 percent. Shares of RAX remain below their $12 price from the company’s IPO last August.

Investing: Comeback for DuPont Fabros

Data center REIT DuPont Fabros Technology (DFT) has been on a rollercoaster ride. The company’s shares slid precipitously during last fall’s market meltdown, which disrupted a financing-in-progress, forcing DFT to briefly suspend construction on all its projects. Things changed quickly, as DuPont Fabros was able to restructure its debt and sign a flurry of leases for its data centers in Chicago and Ashburn, Virginia.

That recovery made DuPont Fabros one of Wall Street’s best-performing stocks in the first quarter of 2009, soaring 232 percent. Other strong performers in the data center sector included Rackspace Hosting (RAX) and content delivery networks Akamai (AKAM) and Limelight Networks (LLNW). Here’s a look at our list:             

Remember to track our Data Center Investor channel for performance updates on data center companies. For tracking individual stocks, you can use the “Companies” link in our navigation bar, or just type the company’s ticker symbol into our search box.