Three reasons the AI data center trade is so back
Shares of key chip, infrastructure, and energy providers are surging.
Major stocks linked to AI data centers are nearly all the way back to where they were when the S&P 500 peaked on February 19.
For data centers, you need:
Supporting infrastructure (Arista Networks, GE Vernova, Vertiv Holdings), and
Power (Constellation Energy, Vistra).
These are certainly a nonexhaustive list of the players in each space, but more of a smattering of some of the highest-profile names that show just how much the AI data center trade is back. And boy is it back. On average, these stocks are less than 2% below their closing level when the benchmark US stock index hit its all-time high:
Of course, it’s worth noting that all these stocks peaked ahead of the S&P 500 — most around the time of the DeepSeek-induced AI freak-out — so they’re not as close to record highs, as a group.
But given how critical the AI trade has been to powering the overall market’s gains since 2023, the intensity of the rally is both impressive and important.
You can probably pin this performance to three critical factors (which apply much more to some parts of this supply chain than others):
Hyperscalers’ capex intentions (one of our most important charts to watch for 2025) have continued to go up and to the right. In fact, the expected growth in capex over the coming 12 months from Microsoft, Amazon, Alphabet, Meta, and Oracle has picked up steam throughout this year, particularly in the wake of a Q1 earnings season that saw these companies reaffirm their commitment to spending billions on capex. DeepSeek’s results be damned, Jevons Paradox rules the roost.
Recession fears are meaningfully lower in light of tariffs being dialed down. Many of these companies were effectively sacrificing free cash flow growth to go on this multiyear spending binge, which would have become a tougher sell in the event that their top-line results took a hit due to the macroeconomic environment souring substantially.
Despite “tariffs” being the most dominant force in shaping price action this year, access to foreign markets is seemingly improving for these companies, at least relative to the path we were on from the Biden administration. Regulations poised to go into effect are being scrapped, and we’re seeing that quickly bear fruit, with Nvidia and Super Micro, among others, reaching huge deals with big players in Saudi Arabia over the past 24 hours.
