Data Center Growth Amid FUD [GeoWire Weekly No. 184]

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FUD in the Data Center Industry

This Weekly Wrap Up post covers earnings reports from Wendy restaurant operator Meritage Hospitality Group, Inc (OTC:MHGU) (dud of the decade), California Nanotechnologies Cor (OOTC:CANOF) (CNO.V) (lukewarm) and MIND (mostly good). 

But I really want to focus on the fear, uncertainty, and doubt (“FUD”) about the data center industry that has continued in investing circles. 

And no, this is not about Tss, Inc. (NASDAQ:TSSI)—well maybe a shameless plug on TSSI, as we are gearing up for our next favorite AI play (potentially, better than TSSI).

TSSI Multibagger Case Study

I initially visited the data center FUD topic a few weeks ago in this Weekly Wrap-Up post, talking about the data center tailwinds positively impacting Sterling Infrastructure, Inc. (NASDAQ:STRL) construction operations and how management addressed the data centers growth skepticism in its Q4 2024 earnings call:

Q: “So my first question is just more of a kind of a sanity check that you’re not really seeing a change in tone from either the hyperscalers or the developers doing DC work? And then hand in hand with that, are you seeing any change in terms of the willingness of the GCs or developers to kind of accept the contractual terms Sterling typically insist on that are kind of necessary for you guys to properly manage risk?”

A: “Yes. Well, I will say we’re seeing a change in tune but it’s the opposite of what the messaging out in the world is. The change of tune is, they are more aggressive and more hungry to grow faster every time we talk to them. And I think people are confusing some of the, I’ll call it, facts in turning it into fiction.”

Regardless of what STRL thinks, The “Debbie Downer” pundits keep warning us of a data center bubble, pointing to signs like MSFT and AMZN supposedly pulling back on data center spending. 

For example, a Wells Fargo analyst just reported that Amazon is pausing certain data center projects, hinting at a capex slowdown​.

However, it’s crucial to cut through the noise. The FUD about MSFT cancelling leases on properties to build data centers is actually what prompted us to look at STRL.

By the way, Amazon.com, Inc. (NASDAQ:AMZN) already put the Wells Fargo debate to bed, at least for a few days. (more on this later).

Actually, I had already reached out to the CEO of an AI company who gave me further perspectives on what he thinks is going on with the “CAPEX” carousel decisions at companies like AMZN and Microsoft Corporation (NASDAQ:MSFT).

It’s all about perspective!! 

I will come back to what this CEO said later in this Weekly Wrap Up post, but it’s given me even more reason to be bullish on our next AI fave that we are most likely about to add to our Focus Stock Of The Month Model Portfolio.

While FUD can cast a shadow, the certain data center trends have very real underpinnings – and our research this week uncovered more clues that the long-term growth story currently remains well intact.

Now, I am not saying that the outlook will not eventually turn sour for the data center industry. Sure, if one of Trump’s amateur poker bluffs goes haywire or we go into a major recession, things may change. 

But for now, things seem well grounded for certain segments of the data center industry. 

Just to be clear, I am a natural bull at heart and don’t like spending my time trying to predict the end of the world. 

So take my opinion with a grain of salt.

I am not always going to be right, but the mission of a microcap bull is not to always be right with every decision. 

It’s to make an absurd amount of money when you can… manage your margin responsibly… cash in some of your paper profits along the way… and keep some cash on hand, so you can take your medicine like a big boy or girl for the times when the bears finally get their chance to gloat, like once every 10 years or so.

 And by gloating, I don’t mean make money, because trust me, most permabears don’t time it right, even when they’re right.

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