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

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 Market Beats Chris Marott with a list of   three stocks that are right at the heart of this  data center buildout 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 and what data we have to show that this AI   story is still 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 uh  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  the an interesting story is for investors. Yeah.   The companies that are working 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. And that's where the 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,   um, we've had several videos this week talking  about the AI story, whether it's overblown,   whether there's still, uh, 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 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. 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, uh we we all know the names,   Microsoft, Amazon, Meta, etc. 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 off 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 they're 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. 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 buildout that is still  very, very much in the early stages, just getting   started as 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 of this   first name you have for us, and there's a lot  of volatility in just the last few months. Yeah,   bridge. So, the first stock we're talking about  is Eaton. It's sort of a well-known name. Um, 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   uh 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 uh 6.38 billion in the prior year.  Earnings were at two came in at $281. The adjusted   EPS was 281. That was in contrast to the 272 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 an to one of the   ETFs that I saw for the infrastructure uh sector  in general, the PAVE ETF, PAVE, that was 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. Yeah. and Nvidia  where we're talking about AI stocks and the data   center buildout. This is very much uh not the kind  of tech name that many investors are looking at.   It's also not the the hockey stick growth story  that so many people interested in AI investing   are are wanting. The the Mus of the world that see  the hockey stick 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. 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 that 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  quarter. 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. 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? 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 eaten. 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 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 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 the data center infrastructure buildout.  Analysts seem to be as well. You can see some   recent price targets up upwards of $500 and lots  of 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 this chart. Why do you think  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 um 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. Now, let's talk about   growth potential for the company, too. We talked  about the hockey stick growth in 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 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.   They've also they're collaborating with Nvidia on  the Beam Ruben DSX platform for AI factories. So,   that's a direct line into next generation compute.  the company is is making an effort to just say   we're 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 they're seeing the most growth   right now. That's a good sign of uh pivoting as a  company into where all the money is flowing. So,   some smart business on Eaton side and it's another  really great solid company for investors to to   keep in mind in this growth story. And we all  know the power grid is absolutely a part of   this data center buildout story and there's a lot  of money flowing there. That includes you know   traditional solutions like eaten 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 the 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 buildout. 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 for the data   centers. We are. The name is Quant 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, Quantas  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 4 trillion uh addressable market   through 2030. Again, that's a $2.4 trillion 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 might want to take  a closer look at. Yeah, that's a huge company with   huge growth potential as well. 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? Yeah, I 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 adjust on an adjusted level.   They're reporting a a backlog of over 44 billion.  That was up 27.5% 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 fundamentals look strong for the company  right now. very good fundamentals and their chart   also strong but maybe at a a decent entry point  here. So again looking at Eaton that we just   talked about and Quantic here their charts are  strong seen 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 the growth that we've   seen in many other of these names tied to the EI  buildout. And so let's talk about that 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 100% growth in a short time   frame kind of stock? Boy, if I had to guess,  I'd say it's probably going to 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 Quant that it's  within about 5% of the analyst price target. You'd   start saying, "Okay, how much upside's 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. Yeah. We know  analysts and their track record of anticipating   how much growth any company involved in the AI  buildout is going to have hasn't been great. They   haven't had the best track record. Uh 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 growth is tied   to the AI buildout story. the analysts haven't  seemed to to keep pace. Would you agree with that,   Chris? I think so. Analysts are willing to go 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 are   it's a whole separate story in itself. I mean, the  stock's on it on its path to have a $1.4 trillion   market cap, which is 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. Yeah.  I also think it's one that I want to add to my   Bridges Buys watch list. It's been a little while  since I've added a stock to the watch list. If you   are new to this channel, I have a watch list,  uh, marketbeat.com/bid 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 watch list back  in November and it's been so fascinating to see   how some of the names of the different guests we  have on the show have moved over time. And Chris,   the third name on your list is one of those stocks  that made my watch list in early December. It is   now up uh over 75% since early December. Let's  get to this last name on your list 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 uh expecting  that I would have put it on a list like this. It's   Verdiff, 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 over it's  up over one00% in the last 5 years. It's been an   incredible growth story that I still believe has  some room to grow. So where does Verda fit in with   the story that we've been talking about? Well,  investors that were listening at the beginning   when 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 Veriff  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 247 power, you have the need for 247 cooling.   And that's where a company like Vertive comes  in. Yeah, Verdiff is an interesting player in   this space because one of the anti-AI data center  arguments is that it's using too much water. Um,   it's it's very bad for the environment. And we  know those stories are out there and they're very   real. I think Verdive is an alternative solution  to that, right? Absolutely. And that's that's   part of 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 fullear  guidance to be between 13.5 billion and 14 billion   in net sales. Uh they've also been active on the  M&A front. They acquired Strategic Thermal Labs.   They've acquired Thermo Key. 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. Yeah. Let's talk about that  JP Morgan 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  Vertive? For Vertive, it's the same thing that it   means for all of these other 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 Pix and Sholes names,   and I know some of the some retail investors get  tired of hearing us talk about Pix and Chubbles,   but that's what this is. This is the Pix and  Shovels names for this data center buildout.   you're getting a much more uh 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 is coming in. They can see it and  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. Yeah, there's actual   money flowing into names like Verdive 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 Verdive 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 Verda  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  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 Vertive  are a 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 it's up 169% in  the last 12 months or 100% this year like Vertiva   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. Um, in terms of  there have been some analysts that are basically   looking at the stock and saying it's probably  fairly priced right now. Um, 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 5 days and it's   up 19% in the last 3 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's   been in 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 cash flow scales,   that dividend growth story could look a  lot better for investors 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 for Vertive, 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. So you can watch that full interview