Data center demand outpaces infrastructure: Oppenheimer

The ever-increasing demand for data centers continues to outpace infrastructure and will likely lead to capacity constraints in 2025, according to Oppenheimer.

The rise of large language models and other artificial intelligence applications requires extreme amounts of computing power, fueling the rampant rise in data center demand.

“The hyperscalers are still locked in an LLM war where there is a shortage of infrastructure for training, which is helping with datacenter pricing,” said Oppenheimer analyst Timothy Horan, in a Friday investor note.

“Checks indicate extremely strong hyperscaler datacenter demand, and we will likely run out of capacity next year,” he added. “Positively, enterprises realize data is the new oil, and will require/accelerate migration to the cloud to enable AI. Everyone is trying to balance latency, cost and accuracy, which often require smaller models.”

In addition to the obvious winners of the data center race, which include Microsoft (NASDAQ:MSFT), Amazon Web Services (NASDAQ:AMZN) and Google (NASDAQ:GOOG)(NASDAQ:GOOGL), Oppenheimer also likes second derivative plays. These are infrastructure names such as Cogent Communications (NASDAQ:CCOI), DigitalOcean (NYSE:DOCN), Equinix (NASDAQ:EQIX) and Cloudflare (NYSE:NET).

“We also see companies like Amdocs (NASDAQ:DOX) benefiting as companies improve internal operations, like the telcos are doing,” Horan noted. “NICE (NASDAQ:NICE) and Verint Systems (NASDAQ:VRNT) should also see use cases and adoption accelerate, but more so next year.”