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Data Center Map indicates there are more than 4,000 data centers in the U.S., the bulk of which are located in California, Texas and Virginia. Other estimates put the number at over 3,000. Split the difference and it’s 3,500, but there are 1,500 such facilities currently under construction, implying existing supply will soon increase by nearly 50%.
Obviously, this an artificial intelligence (AI) story, confirming there’s ample data center demand – so much so that it’s outstripping current supply. When it comes to capitalizing on the data center boom, advisors and investors have an array of options, including dedicated real estate investment trusts (REITs), of which there are a small number, and beloved semiconductor stocks.
The latter is one of this year’s hottest categories, but market participants searching for data center exposure via the semiconductor industry should be ultra-diligent because not all chip names are viable data center plays. Familiar ones, such as Micron (MU) and Nvidia (NVDA) are, but as just one example, Intel (INTC) is not. At least not at the moment.
Fortunately, the data center stock selection burden is eased by some ETFs, including the new VanEck Data Center Supply Chain ETF (RACK). New as in just a few days old, but the fund may be worth examining over the near-term.
RACK Has the Data Center Goods
RACK, which tracks the MarketVector™ Data Center Supply Chain Index, ensures some level of data center purity because that index requires member firms to generate “significant portion of their revenues from activities associated with building, operating, and powering modern data centers,” according to the issuer.
Related, it’s worth noting that RACK is not a dedicated semiconductor or tech ETF. Yes, technology is major part of its sector exposure, but the new ETF does an admirable job of touching on the various bases comprising the data center ballpark. Those include the energy (mostly nuclear) and industrial companies ensuring that data centers are operational on a day-to-day basis. As the chart below confirms, clients will most certainly want exposure to the infrastructure and power sides of the data center story.
(Image: VanEck)
In fact, the need for grid enhancements, consistent cooling and power management and steady baseload power sources are among the factors making RACK’s non-tech sleeves interesting.
“Among the biggest constraints is power. AI workloads require significant electricity, and higher-density data centers need reliable, scalable energy sources,” according to VanEck. “This is pulling new parts of the market into the AI infrastructure discussion, including utilities, nuclear energy, grid equipment, transformers, substations, energy storage and cooling technologies.”
RACK Is Relevant
Yes, RACK is new. Really new. But that doesn’t diminish its relevance nor does its age or lack thereof certainly doesn’t reduce the potential long-term potency of this vehicle as a way capitalizing on data center expansion.
“McKinsey projects that global data center capacity demand could nearly triple by 2030, with roughly 70% driven by AI workloads,” adds VanEck. “Even in the constrained scenario, the investment required is measured in trillions. Projections are based on current assumptions and may not be realized.”
The new VanEck ETF has an annual expense ratio of 0.50%, or $50 on a $10,000 investment. That’s well below average for thematic funds.
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