Investment Opportunities in Data Centers
There’s a notable trend in the data center industry, with one investment emerging as particularly promising—soon to surpass the S&P 500 by 2025.
The Tema Electrification Exchange Traded Investment Trust is seeing attention for its focus on critical utilities, data centers, and energy infrastructure, as highlighted by analysts at Ned Davis Research.
This fund is poised to benefit from the expected surge in AI spending and the growth of data centers across the U.S., potentially outperforming broader stock market investments over the coming years. Pat Chosik, chief thematic strategist at NDR, and his colleague Philip Morse suggest that it could indeed be a standout performer within this sector.
“The Tema Electrification ETF provides the most straightforward and diversified exposure to electrification in data centers,” Chosik and Morse explain. They note its significant investments in leading companies likely to benefit from the expansion of AI-related infrastructure.
They have assigned an overweight rating to the ETF compared to the S&P 500, projecting about 20% relative outperformance by 2027.
Key holdings within this fund include companies like Powell Industries, NextEra Energy, and Bel Fuse.
1. Growing Electricity Demand
The demand for power is anticipated to rise dramatically as data centers expand. According to forecasts from the International Energy Agency (IEA), global electricity consumption is predicted to more than double by the end of the decade—from 415 terawatt hours in 2024 to 945 terawatt hours in 2030.
In the U.S., the IEA predicts that energy needs will grow at an annual rate of 15% during that same timeframe.
Much of this demand will come from the commercial sector, which encompasses most data centers, as indicated by the Energy Information Administration.
Interestingly, the electrification push isn’t merely a future vision; it’s already happening. A context for this can be seen in OpenAI’s Stargate project, which spans multiple states and requires enough energy to power sizable urban areas.
2. Infrastructure Upgrades Needed
Chosik and Morse highlight another aspect: the U.S. power infrastructure needs significant upgrades, making it another reason to be optimistic about data center developments.
The American Society of Civil Engineers has given the energy infrastructure in the United States a “D+” rating in their latest evaluation.
They argue that we are currently in a supercycle for grid upgrades, driven by both data center needs and aging infrastructure.
While there’s excitement surrounding the AI and data center boom, investors are starting to express concerns about the hefty spending plans of major corporations. Although these investments have pushed stock prices up, they draw parallels to the dot-com bubble.
Leading tech companies are investing billions into chip production and data center development, but it remains uncertain if these investments will translate into profitable returns for all involved.
Amazon, Meta, Microsoft, Alphabet, and Apple are projected to collectively spend about $349 billion in capital expenditures by 2025, based on recent analyses of corporate forecasts.
