At least one area of the economy is still booming: data centers. That’s clear from the expanded partnership announced Thursday between electrical hardware and software giant
Schneider Electric
and Compass Datacenters.
Compass builds data centers and Schneider (ticker: SU.France) produces equipment that makes data centers work. The expanded partnership is worth some $3 billion and shows the outlook for data center spending by the likes of
Microsoft
(MSFT),
Alphabet
(GOOGL), and
Amazon.com
(AMZN) is robust.
“The extension of our agreement to continue innovating will address future demands to serve customers in industries ranging from cloud and service providers to semiconductors and EVs, healthcare, and telecommunication, among others,” said Aamir Paul, President,
Schneider Electric
North America, in a news release.
The cloud, which amounts to a bunch of computers running in a data center, is still growing. In the third quarter, sales at Amazon Web Services grew 12% year over year, hitting about $23 billion.
Microsoft
‘s cloud sales grew 24% year over year, hitting about $32 billion. Google Cloud sales grew about 22%, hitting $8 billion in the third quarter.
Sales at cloud and data center service providers are growing, too. Schneider Electric called out “double-digit” data center growth, in percentage terms, in the first half of 2023. (Schneider is based in Europe and reports full results semiannually.)
Data center infrastructure provider
Vertiv
(VRT) sales are expected to hit $6.8 billion in 2023, up from $5.7 billion in 2022.
Vertiv
has raised 2023 sales guidance a couple of times this year. Wall Street projects $7.4 billion in 2024 sales.
“In the post-Covid era, digital growth has surged across industries, leading to the expansion of digital infrastructure, including data centers,” wrote RBC analyst Deane Dray in a recent report on data centers.
The expansion of such infrastructure is positive for Schneider and Vertiv, as well as electrical component suppliers (NVT) and
Eaton
(ETN).
The partnership also shows, to some extent, how companies are trying to deal with labor shortages amid rising demand.
“The construction industry is the only industry that in the last 25 years…has seen no material improvement in unit productivity,” Paul said in an interview with Barron’s Thursday. “It’s not a technology problem, it’s a process problem. [Our partnership] is a good way to reimagine how we’re going to build infrastructure.”
“These types of approaches…we are eliminating massive amounts of waste,” Compass CEO Chris Crosby added in the interview.
These firms’ stock performance shows the market recognizes some of this. Coming into Thursday trading, Schneider stock is up about 15% over the past 12 months, and trades at about 18 times estimated 2024 earnings. The
S&P 500
has risen 17% over that span, and trades for about 17.5 times.
Vertiv stock has gained about 174% over the same span, while Eaton shares have risen 38% and nVent shares 31%. Those three stocks trade for about 19 times, 22 times, and 15 times estimated 2024 earnings, respectively.
Write to Al Root at [email protected]
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