Noting the comments by Ray Ozzie on Microsoft's data center building program, Paul Kedrosky posed an interesting question on his Infectious Greed blog: What is the right investment angle on data center construction? "So, what is it?" Paul wondered. "Commodity servers? Ick. Power? Tough. Rack providers? Storage providers? Hmmm. I'm open to ideas."
How about the companies that specialize in building and operating data centers? Many of these companies were top performers in 2006, but remain the stocks most focused on the data center boom. Let's examine a chart of the performance of major public data center companies since the beginning of the year, keeping in mind the recent semi-correction on Wall Street:
What do the stocks on the chart that have gained ground since the beginning of the year have in common?
Savvis (SVVS), Equinix (EQIX), Terremark (TWW) and Digital Realty Trust (DLR) are all in the midst of major construction projects that will expand their data center networks. Switch and Data (SDXC), whose chart reflects only three weeks as a public company, also is continuing to expand its data center network. The huge growth in this sector is likely providing support for the share prices of these companies. The other obvious investment play in the data center sector would be the upcoming VMware IPO, which will provide a "pure play" bet on the growing enthusiasm for virtualization as a data center management and cost-saving tool.