JP Morgan Just Revealed a Massive Data Center Gap—These 3 Stocks Will Fill It

[00:00:00] Speaker 1: Is it over? Is it just getting started? Is it overblown? The questions surrounding the AI story continue to fly all over this week, but a new report shows some solid numbers and this AI story is far from over. Joining us today is MarketBeat's Chris Markotch with a list of three stocks that are right at the heart of this data center build out that is truly just getting started. So before we get into these three names and the real contracts that are on the table for these companies, let's get to this report, Chris, and what data we have to show that this AI story is still [00:00:33] Chris Markotch: very in its early stages. Right. So this report came from JP Morgan and it said that 60% of the planned data center capacity for 2027, those projects haven't even broken ground yet. And another 7% of the projects that are under construction are running into delays. Those could be because of supply chain bottlenecks or for regulatory hurdles based on permitting and stuff. And then of course, there's the whole idea of, oh yeah, these data centers need energy and where are they going to get the energy from, which is becoming an issue. So, you know, hyperscalers have committed the cash, but the shovels that are the companies that are building these data centers can't keep up. And I think that's where an interesting story is for investors. Yeah. The companies that are working [00:01:23] Speaker 1: to keep up with all of this demand and of course, construction never runs on time. If you've ever built anything, you know that that timeline is always longer than expected. That's where the bottlenecks and that's where the backlogs truly exist for many of these companies. So we're going to get into those names in a minute. The one question that I have, we've had several videos this week talking about the AI story, whether it's overblown, whether there's still growth ahead for a lot of these names in the market that have already seen a lot of growth. And that's the question of, yes, the backlogs are there. Yes, there is a continued demand. The buildout is still very early yet, but is the market already pricing in that growth? I think that's the fear some investors have. [00:02:04] Chris Markotch: My short answer to that is no. And I think part of what explains some of the volatility you're seeing in the market is investors are simply trying to go where maybe their best opportunity is in the moment. And here's what I mean by that, Bridget. You have companies, the hyperscalers, we all know the names, Microsoft, Amazon, Meta, et cetera, that are committing the money to these data center projects. And they've confirmed in the last earnings report that they're not only continuing to spend that money, they're doubling down on it and saying we're going to increase the amount of money that we're doing for CapEx spend because the demand is real. But it's going to take some time for companies like Microsoft and Amazon and Meta to actually realize the return on that investment that is coming at least in part of their free cash flow. Okay. They, yes, there is talk that some of them are getting financing in the public markets for that, but some of that money is certainly coming out of their existing free cash flow. And that's making some investors look at that and say, are these the best place to put our capital right now? That's where the opportunity that I'm talking about comes in because there are companies that are responsible for getting these data centers built. And those are the companies that are going to be showing investors the money right now and in the coming quarters. [00:03:26] Speaker 1: And I think you can see that in the names that we are about to talk about on this list. So let's get right into it. Again, these are three companies that are really right at the heart of this data center build out that is still very, very much in the early stages. Just getting started is that JP Morgan report detailed as well. So let's get into that first name. And this first one, Chris, really covers that volatility story that we've seen. You look at the chart and this first name you have for us. And there's a lot of volatility in just the last few months. [00:03:53] Chris Markotch: Yeah, so the first stock we're talking about is Eaton. It's sort of a well-known name. You might call it on the fringe of being a blue chip stock. So this company sells what I would call the electrical guts that go inside a data center. We're talking about everything that connects the electrical grid to the server racks. That's what Eaton provides. You can see that the company in the last quarter, they had some very strong numbers, which shows that again, the demand is real. It's showing up in their numbers. I'm looking right now. Revenue came in at $7.45 billion. That was up from 6.38 billion in the prior year. Earnings came in at $2.81. The adjusted EPS was $2.81. That was in contrast to the $2.72 from the prior year. So maybe not blowout numbers that some investors would like to see, but certainly we're showing solid growth. And that's reflected in the stock price. It's up about 32% year to date. That compares neatly to one of the ETFs that I saw for the infrastructure sector in general, the PAVE ETF, P-A-V-E. That's up probably about 22% this year. So this is up a little bit higher than that. And that's one of the stories behind all of these stocks is you can look at an ETF certainly, and that's one way to play the infrastructure, or you can look at some of the individual names within that ETF and you might be able to find a better story. [00:05:19] Speaker 1: Yeah. And in video, we were talking about AI stocks and the data center build out. This is very much not the kind of tech name that many investors are looking at. It's also not the hockey stick growth story that so many people interested in AI investing are wanting. The MUs of the world that see the hockey stake of growth, those other memory stocks that are doing, seeing crazy growth numbers right now. And yet this is a name that has continued to make lists of several different analysts we've had on this show. And I think that's because of the steady nature of the growth story ahead of this stock. So talk about that timeline a little bit more. [00:05:55] Chris Markotch: This is a story that, yeah, it's going to be playing out, not just in 2027, but in 2028 and beyond. There's a backlog. They've got to get this backlog filled and companies like Eaton are there to fill it. And you talked about the chart doesn't show the hockey stick growth, but what's interesting, what does show a little bit of the hockey stick growth is the company's earnings report. The segment of the business called Electrical America's data center orders, they were up 240% year over year in the last order. Of that 240% year over year growth, data center revenue in that segment grew about 50%. That growth, as we've just said, that's not expected to slow down. It's expected to accelerate. So that's where the opportunity is. You're not seeing necessarily the hockey stick move in the stock now, but I think you're starting to see investors start to move into that side of the trade now. And one of the indicators for me, again, I go back to that paid ETF and I started seeing, okay, that in the last month or so, that's starting to gain traction. And I think that's just showing that's where some of the capital is starting to flow to. [00:07:01] Speaker 1: Yeah, that is hockey stick growth for earnings for sure. But I'm curious in a company the size of Eaton that's been around for so long, well-established, has lots of different departments and areas. Is that growth in just the data center sector enough to really move the needle for this company overall and really start to see some more explosive growth in the stock price? [00:07:20] Chris Markotch: My short answer to that question is, of course it is, because I think we're dealing with something that we haven't seen for a company like Eaton. Eaton is a company that normally, you know, you're not going to expect to see a lot of 32% growth year over year. You're not going to, you're not expecting to see that from a company like this. But the data centers is what gives this company a revenue stream that they can tap into in addition to the revenue that they already have [00:07:44] Speaker 1: coming in. Yeah, I want to talk a little bit more about the chart action that we're seeing here and also what the analysts are saying. So what you said, more investors are catching on to this company as a part of the data center story and a part of that long-term growth story with the data center infrastructure build out. Analysts seem to be as well. You can see some recent price targets upwards of $500 and lots of buy recommendations for this company. So they're clearly expecting it to outperform as well. And yet the stock price has really kind of stumbled and struggled to find a solid ground. It's been up and down and there's a lot of movement in this chart. Why do you think [00:08:21] Chris Markotch: that is? I think investors are probably a little bit concerned when you start seeing that stock get up over that $400 price point that maybe we're getting into that area where the stock might be getting a little bit overbought. When the stock got up to around $435 in May, early May, which was like right before the earnings report, it's been trying to get back to that level. And I think it's just investors are looking for probably that signal that it's not only ready to get to that last level of around $420, which is about the consensus target, but ready to push above that in a meaningful way. [00:08:57] Speaker 1: Now let's talk about growth potential for the company too. And we talked about the hockey stick growth and earnings this quarter. How much more hockey stick growth can we expect in the next few quarters down the road? You know, I think you have to look at [00:09:10] Chris Markotch: that the company just closed an acquisition of Boyd Thermal. And so that expands them into an area of liquid cooling, which we've talked about on this program before. And they've also, they're collaborating with NVIDIA on the Beam Rubin DSX platform for AI factories. So that's a direct line into next generation compute. The company is making an effort to just say we're trying to do more than just we provide the electrical guts for data centers. They're also trying to get into a few different angles. I think that's something that investors should be looking at at the time too. Yeah, they're growing in the area where [00:09:48] Speaker 1: they're seeing the most growth right now. That's a good sign of pivoting as a company into where all the the money is flowing. So some smart business on Eaton's side. And it's another really great solid company for investors to keep in mind in this growth story. And we all know the power grid is absolutely a part of this data center build out story. And there's a lot of money flowing there. That includes, you know, traditional solutions like Eaton where they're working to to build the grid. It also includes nuclear solutions. A lot of these hyperscalers are investing into nuclear solutions to power all of these data centers. If you want to hear more about the seven best nuclear stocks to watch this year, check out this special report on marketbeat.com right now. You can scan the QR code. We also have a link in the description to get that full list of seven stocks right now in the nuclear sector that, again, are some of the hottest names investors should be looking at where a lot of money is flowing in this AI data center build out. So check out that report today. Okay, Chris, let's move on to the second stock on your list. And we're kind of staying in that energy bottleneck [00:10:52] Chris Markotch: for the data centers. We are. The name is Quanta Services. Ticker symbol is PWR. Again, it's PWR. There's no Q anywhere in the ticker symbol. So Quanta is doing the physical work that turns a data center site plan into delivered power. If you think of it and say Eaton is responsible for the hardware components that go inside the data center. Quanta is the company that's responsible for getting the electricity into the data center in the first place. The company in their, uh, at their 2026 investor day outlined a plan that they believe gives them a $2.4 trillion addressable market through 2030. Again, that's a 2.4 trillion dollar market by 2030. This is a company that did roughly 32, 33 billion in revenue in the last, in the last year. And they're projecting now 2.4 trillion by 2030. That's something that investors [00:11:53] Speaker 1: might want to take a closer look at. Yeah, that's a huge company with huge growth potential as well. And let's take a look at their earnings in particular as well. Are they seeing the same kind of hockey stick growth in any areas of their business on their most recent earnings report? [00:12:07] Chris Markotch: Yeah, I think it was a blowout, uh, earnings report pretty much any way you look at it. Again, revenue was up from 6.23 billion in 2025 to 7.87 billion in the same quarter this year. Earnings per share were up from $1.78 to $2.68. That's on a, on an adjusted level. They're reporting a, a backlog of over $44 billion. That was up 27 and a half percent year over year. And the company is now guiding to say, they're going to grow EPS by between 15 to 20% annually through 2030. So again, it, it, the [00:12:46] Speaker 1: fundamentals look strong for the company right now. Very good fundamentals and their chart also strong, but maybe at a decent entry point here. So again, looking at Eaton that we just talked about and Quanti here, their charts are strong, seeing a ton of growth, but in this wild AI market that we're in, uh, 86% growth in the last 12 months isn't as high as the, the growth that we've seen in many other of these names tied to the AI build out. And so let's talk about that, uh, as far as the opportunity for investors here. Do you think that means that there's still the potential for, uh, larger gains in a name like this, or is this going to be more of a name that is strong and steady growth for investors rather than getting that, you know, over a hundred percent growth in a short timeframe kind of stock? [00:13:31] Chris Markotch: But if I had to guess, Bridget, I'd say it's probably gonna be somewhere in between. I think this is going to be growth that outpaces the broader market. Normally I might be concerned when I see a stock like Quanta that it's within about 5% of the analyst price target. You'd start saying, okay, how much upside is left? But then you look at what the analysts have been saying since the earnings report and you're seeing the fact that it's the analysts that are sort of pushing the stock higher based on the fundamentals. It's not analysts are pricing the stock for fundamentals that haven't shown up yet. They're basically chasing the fundamentals that the company's already delivering. [00:14:07] Speaker 1: Yeah. And we know analysts and their track record of anticipating how much growth any company involved in the AI build out is going to have hasn't been great. They haven't had the best track record. I think about MU that just reported earnings this week and how rapidly this stock has grown and blown through expectations quarter after quarter after quarter. So I think that that is one, one thing to keep in mind with any company that's growth is tied to the AI build out story. The analysts haven't seemed to keep pace. Would you agree with that, Chris? I think so. Analysts are willing to go [00:14:41] Chris Markotch: out on a limb, but only so far. But I think you, you, you also can't discount the fact that then animal spirits take us the rest of the way. Microns, it's a whole separate story in itself. I mean, the stock's on its path to have a $1.4 trillion market cap, which just seems unbelievable. But I think the story is very clear whether you believe analysts are being conservative or not. You see a stock like Quanta and you say analysts are raising their price targets. Institutions are continuing to buy more than they are selling. They're buying over 50% more than they're selling. So that tells me that there's a lot of demand in this stock from the smart money. And that would be a signal to me for retail investors that this is a good stock that you want to get into. [00:15:31] Speaker 1: Yeah, I also think it's one that I want to add to my Bridges Buys watchlist. It's been a little while since I've added a stock to the watchlist. If you are new to this channel, I have a watchlist on marketbeat.com/bridget or scan the QR code on the screen now to check it out. I add one stock per video that we talk about just to see how it moves over time. I started this watchlist back in November, and it's been so fascinating to see how some of the names of the different guests we have in the show have moved over time. And Chris, the third name on your list is one of those stocks that made my watchlist in early December. It is now up over 75% since early December. Let's get to this last name on your list [00:16:10] Chris Markotch: today. Yeah, so this is a name that I'm sure a lot of people that watch this channel frequently will be very familiar with and they'll probably be expecting that I would have put it on a list like this. It's Vertiv, ticker symbol is VRT. So yes, Bridget, the stock is up over 100% year to date. It's up over 169% in the last 12 months, and it's up over 1,100% in the last five years. It's been an incredible growth story that I still believe has some room to grow. So where does Vertiv fit in with the story that we've been talking about? Well, investors that were listening at the beginning, we were talking about Eaton and some of the other markets they were moving into. One of the areas that Eaton's trying to get into, at least from an adjacent standpoint, is the liquid cooling market. This is the market where Vertiv plays. You've got all of these GPUs and electric equipment that are powering these data centers and they have to be running 24/7 and they get really, really hot and they need things to cool them down. The liquid cooling process is turning out to be one of the ways that it's becoming almost the go-to way for a lot of these data centers to handle that need for just as you have the need for 24/7 power, you have the need for 24/7 cooling. And that's where a company like [00:17:30] Speaker 1: Vertiv comes in. Yeah, Vertiv is an interesting player in this space because one of the anti-AI data center arguments is that it's using too much water. It's very bad for the environment and we know those stories are out there and they're very real. I think Vertiv is an alternative solution to that, right? [00:17:46] Chris Markotch: Absolutely. And that's one reason why the stock has been growing so quickly. It's because of, again, it's the demand. The company just raised their four-year guidance to be between $13.5 billion and $14 billion in net sales. They've also been active on the M&A front. They acquired strategic thermal labs, they've acquired ThermoKey. So they're going from just chip level cold plates all the way up to facility scale, heat rejection. This is just a stock that it's continuing to grow and they're taking that revenue that they're getting and they're, again, they're just, they're investing in their own growth. [00:18:25] Speaker 1: Yeah, let's talk about that JPMorgan report again and how the ground is not broken yet on so many of these projects that are expected to be here yet this year or next year. What does that piece of this story mean for Vertiv? For Vertiv, it's the same thing that it means for all of these other [00:18:42] Chris Markotch: companies. When you own the hyperscalers, you get exposure certainly to AI demand, but you're also paying for a lot of other things. You're paying for cloud margins and ad businesses and all that other stuff. When you're investing in picks and shovels names, and I know some of the, some retail investors get tired of hearing us talk about picks and shovels, but that's what this is. This is the picks and shovels names for this data center build out. You're getting a much more, uh, a much cleaner exposure to the actual dollars that are being spent to build these data centers. These are the companies that, again, their equipment is going to be needed in these data centers. And so investors don't have to kind of wonder where the return on investment's coming in. They can see it. They're going to be seeing it every quarter. And the only question is, are they going to get in front of it or are they going to be chasing these stocks higher? That's, that's the question you've got going on right now. [00:19:30] Speaker 1: Yeah. There's actual money flowing into names like Vertiv from the hyperscalers, which is a video Thomas and I did, uh, earlier this week. I'll link to that at the end here. But I want to talk a little bit about, um, the money flowing into Vertiv and how long that money will be flowing. You just mentioned the backlog is there. The construction is happening. Will this growth story end sometime? Will there be a time when investors who maybe bought Vertiv back in December when we talked about it on the show and are holding on or seeing some good gains, uh, when they might want to say, okay, this growth story could be over. I'm now holding a little bit of risk here. What's your thought on that? And I also want to pull in what analysts are saying too, because it's interesting to see some of the more recent analyst estimates on Vertiv [00:20:11] Chris Markotch: are a hold or a sell. I'm going to be consistent with something that I've said about some other stocks on this channel. Anytime you see a stock that's up 1100% in five years or 169% in the last 12 months or 100% this year, like Vertiv is, it's never a bad thing to say, yeah, you're going to trim your position just a little bit, take some of that risk off the table. You're going to feel better because you're going to, again, you're taking some of that risk off of out of your position and you're going to be getting ready, positioning yourself for the next leg higher. Nothing wrong with that at all. And I agree with you, Bridget. Of the three stocks that we've talked about, this one probably has the muddiest analyst position in terms of there have been some analysts that are basically looking at the stock and saying it's probably fairly priced right now. But I think you have to look at what the company is saying about demand expectations, about their backlog. The stock over time is probably likely to go up. So I think if you see a significant drop from where it's at now, and it's, uh, you know, it's, it's only down a percent and a half in the last five days and it's up 19% in the last three months. So the stock really hasn't even had a significant pullback at all. If you start seeing that pullback get a little bit more significant, that might be the time to start thinking about adding it. But I think one thing that should be brought up is, um, the company has been in an acquisition mode right now. So they're probably not going to be doing much with their dividend right now, except for maintaining it. But as this company grows, you might also be expecting this company to be a fairly nice dividend play as well, because as their free cashflow scales, that dividend growth story could look a lot better for investors [00:21:57] Speaker 1: as well. Now the growth story is definitely still there. And there are several analysts who do believe that too. While there might be some muddy analyst coverage here, there's also analysts giving it a $500 price target from where it is today. So there are plenty of analysts still bullish on future growth revertive saying this growth story is far from over. So a great list of three names to look at here today, Chris. And again, another good discussion on whether this AI growth story is over or if there's still a lot of legs left to run for some of these companies that have already had a strong run. If you want to dive deeper into that conversation, make sure to watch the full video I had with Thomas earlier this week, where we really dive into what the market is saying versus what the numbers are saying on the earnings reports for many of these key hyperscaler companies and the companies benefiting from their investments. you can watch that full interview here.