Beyond the Hype: Why the AI Data Center Trade Isn’t Over

For many investors, the current AI rally feels like a missed opportunity. The headlines are filled with “supercycles,” and the stock charts for infrastructure plays look like vertical climbs. It’s uncomplicated to feel late to the party. However, a closer look at price-to-earnings multiples and the strategic blueprints of the world’s largest hyperscalers suggests we aren’t at the peak—we’re likely in the second year of a decade-long transformation.

The Memory Supercycle: More Than Just a Rally

The market is currently hailing a “memory supercycle,” and the capital flows reflect this enthusiasm. The Roundhill Memory ETF (symbol: DRAM) recently took in more than $5 billion in a single month, including $1.1 billion on a single Thursday. This ETF provides concentrated exposure to global memory makers including Micron, SK Hynix, Samsung, Sandisk, Seagate, Kioxia, and Western Digital.

While some view these prices as “absurd,” the fundamentals tell a different story. Micron, for instance, recently rallied from $542 to $747 a share in one week. Despite this, FactSet data indicates Micron is trading at just 9 times its next 12 months of earnings. When you consider the company’s ability to raise prices due to the insatiable demand for HBM chips, it remains one of the cheapest quality stocks in the sector.

For those looking for “sleeper” plays, the focus is shifting toward the materials used to turn silicon wafers into chips, specifically companies like Qnity (a DuPont spin-off) and Element Solutions.

Cooling the Heat: The Infrastructure Underbelly

AI computing generates an immense amount of heat, making thermal management a primary bottleneck for data center expansion. While companies like Vertiv (VRT)—which has grown from a $5.3 billion enterprise value in 2020 to a $130 billion market cap—are well-known, other players are less discovered.

Modine Manufacturing is emerging as a strong contender. By shedding slow-growing industrial segments and focusing on strong relationships with hyperscalers, Modine has positioned itself as a high-growth alternative to traditional HVAC providers like Carrier, which remains heavily exposed to the slower residential market. In the infrastructure race, Modine is increasingly viewed as a viable peer to established suppliers like Eaton.

The Rise of the Neoclouds and the Nvidia Connection

Nvidia isn’t just selling GPUs; it’s actively shaping the ecosystem through strategic investments in “neoclouds”—specialized AI cloud providers.

• CoreWeave: Led by CEO Michael Intrator, CoreWeave is utilizing improved bond ratings to borrow at around 6% to build out AI data centers. Nvidia has been a key supporter, providing a $250 million anchor investment for its IPO and a further $2 billion investment in January.
• Nebius: Nvidia participated in a $700 million round in 2024 and followed up with a $2 billion investment in March.
• Iren: A recent deal includes a five-year warrant for up to 30 million shares (a $2.1 billion investment) and a $3.4 billion cloud contract for GPU services.

The Hyperscaler Perspective: The Long Game

The most significant contradiction in the current market is the gap between current losses and future expectations. While critics point to the hundreds of billions in capital expenditure and empty current cash flows, the executives running the show see a different horizon.

Amazon CEO Andy Jassy maintains that the market is still very early in this cycle. Jassy expects profits from these data center investments to start flowing as soon as next year. For Amazon, the stakes are existential; the company cannot afford to be “Bing’d” by Microsoft or become the “AOL” to Alphabet’s Google. This drive for dominance ensures that budgets for compute and infrastructure will remain aggressive.

Final Analysis: Value vs. Growth

The irony of the current market is that traditionally “safe” stocks—such as Johnson & Johnson and Abbott Labs—have become dangerous as they fall out of favor. Meanwhile, “high-risk” memory and infrastructure names have evolved into high-growth engines with seemingly no top.

While the “supercycle” terminology can be a warning sign, the price-to-earnings multiples and the commitment of hyperscalers suggest that the data center thesis is still very much investible. We are likely in the second year of the first decade of this shift, and for those looking at a multi-decade horizon, the opportunity is far from over.