While demand for artificial intelligence applications is seeing rapid growth, several non-tech companies are well-positioned to benefit directly from the AI boom over the next few years, according to Scotiabank. Analysts from the Canadian bank’s investment banking division suggest that demand for data centers and electrical power will surge as AI systems become more advanced and widespread. This is because although GPUs, the specialized chips that power AI applications, are more efficient, they consume more than twice as much electricity to operate compared to non-AI chips such as CPUs. The Scotiabank analysts named six stocks that they think are well-positioned to capitalize on surging demand for data centers and renewable energy from AI applications. “We are bullish on the outlook for the data center industry and expect Equinix and Digital Realty to see significant increases in demand, providing fuel to expand valuations,” the analysts wrote in a note to clients on Jan. 22 about the second-order impact from the growth AI applications. Data center operator Digital Realty has said that it expects data created and consumed by companies to increase by 28% globally by 2025 from 2020 levels as AI usage proliferates across businesses. Meanwhile, earlier this week, fellow data center firm Equinix launched a new cloud service that will allow companies to manage their Nvidia AI supercomputing infrastructure to build AI applications. DLR EQIX 1Y line Scotiabank is particularly enthusiastic about Digital Realty, which it upgraded to a “Sector Outperform” rating with a price target of $155 — or around 9% upside potential from its current share price. Shares of the company have rallied by more than 30% over the past 12 months. “We believe it is in a prime position to create incremental shareholder value as it expands capacity to meet AI’s seemingly insatiable demand for data while at the same time de-leveraging the balance sheet by relying on JV partners to fund new investments,” the bank’s analysts added. Not to be left out, Big Tech companies like Amazon , Google and Microsoft have also announced multi-billion dollar plans to expand their data center capacity in anticipation of the AI-driven growth. Due to their massive, power-hungry data centers, Scotiabank noted that the tech companies are the largest corporate consumers of renewable power. The analysts identified NextEra Energy , NextEra Energy Partners , and Brookfield Renewable Partners as best able to meet Big Tech’s soaring electricity demand with renewable sources.
Check out the companies making headlines in midday trading.
Best Buy — Shares popped nearly 6% after the retailer’s fiscal second-quarter earnings beat on both the top and bottom lines. Adjusted earnings per share came in at $1.22, versus the $1.06 expected from analysts polled by Refintiv. Revenue was $9.58 billion, topping the consensus estimate of $9.52 billion. However, Best Buy lowered the top end of its revenue outlook for the year.
Big Lots — The discount retailer surged 26.7% after its earnings report came in better than analysts expected. Big Lots lost $3.24 per share, on an adjusted basis, less than the $4.11 forecasted by analysts surveyed by FactSet. Revenue exceeded the consensus estimate of $1.1 billion, coming in at $1.14 billion.
Coinbase, Marathon Digital, Riot Platforms — Stocks tied to the cryptocurrency industry soared after a court ruled against the Securities and Exchange Commission in a lawsuit about spot bitcoin ETFs. Shares of Coinbase, which is named as a custodial partner in several proposed bitcoin ETFs, jumped 13%. Bitcoin mining stocks also rose, with Marathon Digital surging 24% and Riot Platforms climbing 15%.
3M — Shares gained 2.6% after the company agreed to settle lawsuits regarding potentially defective U.S. military earplugs for $6.01 billion. The deal had grown into the largest mass tort litigation in U.S. history.
Heico — The engine and aircraft part maker retreated 3.1%. Despite beating expectations for revenue in the quarter, the company said its operating margin fell when compared with the same quarter a year ago.
Nvidia — The artificial intelligence stock rallied 4%, part of a broader ascent among technology stocks in Tuesday’s session. Morgan Stanley reiterated its overweight rating on the stock, noting its strong earnings report last week can be a positive signal for the AI supply chain.
PDD Holdings — U.S.-listed shares jumped 17.8%. The Chinese e-commerce company beat Wall Street expectations when reporting second-quarter earnings. It noted a positive shift in consumer sentiment during the quarter.
Oracle — Software giant Oracle climbed 2.9% following an upgrade from UBS to buy from neutral. UBS said the stock could have upside ahead due to tailwinds tied to artificial intelligence.
AT&T, Verizon — The telecommunication giants each added 2.3% on the back of a Citi upgrade to buy. The firm cited stabilization in the wireless environment and said the stocks’ valuations may be over-discounting potential costs tied to mitigating lead-covered cables.
Alphabet, General Motors — Google Cloud and General Motors said Tuesday they’re working together to explore artificial intelligence opportunities across the automaker’s business. Following the announcement, shares of Google Cloud’s parent company Alphabet and General Motors rose 3.5% and 0.6%, respectively, during midday trading.
Catalent — Catalent jumped more than 5% after the biotech company issued a solid revenue outlook and announced a deal with activist investor Elliott Investment Management. For fiscal 2024, Catalent forecasted revenue in the range of $4.30 billion to 4.50 billion, far above the $4.19 billion expected by analysts polled by FactSet. Additionally, Catalent agreed to name four new independent directors to its board, two of whom will be nominated by Elliott. It also agreed to a review of its business and strategy.
Ginkgo Bioworks — The biotechnology company’s stock popped more than 18% after announcing a five-year cloud and AI partnership with Google Cloud. As part of the deal, Ginkgo Bioworks will work to create new large language models for biology and biosecurity uses. Alphabet shares were last up more than 3%.
Rockwell Automation — The industrial stock gained nearly 2% after Wells Fargo upgraded the stock to equal weight from underweight. The Wall Street firm said it’s bullish on Rockwell’s earnings growth potential.
Airbnb — The vacation booking platform climbed 4.8%. Bernstein reiterated its outperform rating and said investors should buy the stock after a recent pullback in share prices.
Palantir – The software stock surged more than 5%. Bank of America reiterated its buy rating on Palantir, calling the company a “key player” in implementing secure AI despite the recent share pullback.
Splunk — Shares of the software company added 1.8% on Tuesday after Jefferies named the company a top pick in a Tuesday note. Jefferies said Splunk is now in position to deliver “mid-teens” increases in annual revenue after a management overhaul that began 18 months ago.
Futu Holdings — The Asian wealth management stock popped 10% following a double-upgrade to buy from underperform by Bank of America. The Wall Street bank said to expect more growth in overseas markets.
NextEra Energy Partners — The energy stock advanced 3.7% on the back of an upgrade from Raymond James to outperform from market perform. Raymond James said investors should buy the dip on the stock.
— CNBC’s Sarah Min, Samantha Subin, Yun Li, Hakyung Kim, Michelle Fox, Pia Singh and Jesse Pound contributed reporting
