Akamai, DuPont Fabros Are Top Performers

The second quarter of 2010 saw a retreat for the broader stock market data center, a trend that was reflected in the performance in the data center sector. The shares of most companies in the sector outperformed industry averages, with just two of the 10 stocks trailing the Dow. But data center stocks fell short of the strong performance seen in the first quarter of 2010.

The leading performers were content delivery networks, which gained on strong growth for Internet video delivery and analysts’ growing comfort level about pricing risk for the CDN sector. Top performers included Akamai (AKAM), Limelight Networks (LLNW) and data center REIT DuPont Fabros (DFT).

Here’s a look at the winners and loser in the data center industry in the second quarter of 2010.

By comparison, the Dow Jones Industrial Average was down nearly 10 percent for the second quarter. The broader S.& P. 500 index and the Nasdaq both lost about 12 percent in the quarter.

Data Center IPOs of 2010

It’s been nearly two years since the initial public offering for Rackspace Hosting (RAX). As the economic crunch begins to ease, and demand for mission-critical facilities remains strong, a handful of data center providers have announced plans for IPOs this year. Here’s a review of the announcements thus far in 2010:

The Telx Group: On March 19th this provider of colocation and interconnection services filed for an initial public offering in which it hopes to raise up to $100 million. The company said it intends to use the money to accelerate the growth of its business through expanding and upgrading its data centers, and possibly acquisitions. The company is expected to trade on the Nasdaq under the symbol TELX.

CoreSite: On May 13 this data center developer filed for an initial public offering as a real estate investment trust (REIT), and hopes to raise $230 million. CoreSite Realty Corporation also plans to arrange a $100 million credit facility and issue $175 million in senior notes when it completes the offering, providing the company with a total of $505 million when it begins life as a public company. The company plans to trade on the NYSE under the ysmbol COR.

Tech Titans in Buying Mode

In a recent interview, investor Warren Buffett said the economy “is beginning to show real signs of strength,” citing increased consumer spending. The Oracle of Omaha has been wary of the tech sector in the past, but it’s hard to miss the signs of confidence in recent investments by major technology companies.

Google and Apple have dominated headlines recently, with Apple buying semiconductor business Intrinsity for $120 million and App company Siri a day later. Bloomberg has an analysis of Apple’s accelerating rate of acquisitions.

While Google waits to hear the fate of its AdMob acquisition, it snapped up Agnilux, LabPixies and Bumptop.  As all of the headlines read today, Google threw $38.8 million to the wind today, by investing in a NextEra Energy Resources wind farm in North Dakota.  They also took the wraps off Google Ventures, their venture capital arm. Continuing the push for control in the mobile market, Google Ventures announced it is investing in startup company Corduro, which provides a mobile payment platform.  Google Ventures has also invested in Silver Spring Networks, a smart grid solutions provider who recently the headline sponsor at GreenNet 2010.

SGI, NaviSite Lead First Quarter Stock Winners

The first quarter of 2010 was a Cinderella quarter for struggling stocks in the data center sector, with big gains for companies whose shares have struggled. The biggest winner was server vendor SGI, which saw its shares advance 52 percent in the first three months of the year as its 2009 acquisition of high performance computing specialist Silicon Graphics continued to pay dividends. In recent weeks the company, previously known as Rackable Systems, has introduced a cloud computing platform for HPC projects and announced performance records for its Altix blade cluster.

SGI led a group of data center stocks that beat the broader market averages with double-digit gains. These included managed hosting provider NaviSite (NAVI), virtualization market leader VMware (VMW), content delivery Akamai (AKAM), data center REIT DuPont Fabros (DFT), colocation provider Internap (INAP) and managed hoster Savvis (SVVS).

Here’s a look at the winners and loser in the data center industry in the first quarter of 2010.

By comparison, the Dow Jones Industrial Average gained 4.1 percent over the first three months of the year,  while the S&P added 4.9 percent for the quarter and the tech-centric NASDAQ had the strongest quarterly showing, up 5.7 percent.

Switch and Data, Internap Top 4Q Winners

Rounding out our year-end review of data centers in the financial markets, here’s a look at the top performers for the fourth quarter of 2009. Colocation provider Switch and Data (SDXC) was the best-performing data center stock of the quarter, as it agreed to be acquired by rival Equinix (EQIX) for a significant premium.

The fourth quarter also brought some joy for the shareholders of Internap Network Services (INAP), as the turnaround strategy implemented by new president and CEO Eric Cooney appears to be winning favor with investors. The company’s stock has taken its lumps in recent years amid struggles with its content delivery business. Internap cut costs and staff shortly after Cooney’s arrival, and is in the process of repositioning its data center network to reduce its reliance on third-party colo providers.

Here’s a look at the winners and loser in the data center industry in the fourth quarter of 2009.

Remember to track our Data Center Investor channel for performance updates on data center companies. For tracking individual stocks, you can use the “Companies” link in our navigation bar, or just type the company’s ticker symbol into our search box.

Tracking Cramer’s ‘Data Center Doomsday’ Call

Last Oct. 22 stock pundit Jim Cramer warned his legions of CNBC viewers that the data center industry was ripe for a major fall. “Get out of the data center stocks,” Cramer told viewers. “I think the data center industry is in decline. I see an industry that’s about to be brought low by new technology, so I think you should sell, sell, sell.”

Our response at the time: “When it comes to data centers, Jim Cramer is dumber than a bag of hammers.” (See There’s a Village Somewhere Missing an Idiot for the full story).

So how did Cramer’s prediction turn out? If you sold all your data center stocks, you’re probably regretting it. Nine of the 13 publicly-held companies we track in our Data Center Investor chart have gained in value since Cramer’s Oct. 22 call, including five stocks with double-digit improvements in that short time. Those include Equinix (EQIX) and Switch and Data (SDXC), whose merger announcement prompted Cramer’s prediction of Data Center Doom.

2009: Stellar Year for Data Center Stocks

As the stock market rebounded in 2009, few sectors bounced better and higher than the data center industry. Share prices of many key players in the sector finished with triple-digit gains for the year, while even the laggards easily outperformed the major indices.

At the close of 2008, the share prices of many providers were battered amid credit worries and concerns about the capital-intensive nature of the data center business. But companies continued to invest in mission-critical infrastructure, and established players were able to find expansion financing amid the credit crunch.

All of the companies we track in our Data Center Investor performance chart managed gains of 53 percent or better for the year. Meanwhile, the Dow Jones Industrials rose 18.8 percent, the S&P 500 added 23.5 percent, and the NASDAQ 100 improved by 43.9 percent. Here’s a look at the year’s top performers:

Leading the pack was DuPont Fabros Technology (DFT), one of the real estate investment trusts focused on the data center sector.

There’s A Village Somewhere Missing an Idiot

I normally try to deal in information, not punditry. But this morning I cannot fend off the impulse to share this opinion: When it comes to data centers, Jim Cramer is dumber than a bag of hammers.

Seeking to have something relevant to say in the wake of the Equinix-Switch and Data deal, Cramer decided to highlight the data center sector Thursday on his “Mad Money” show on CNBC. To demonstrate his familiarity with the sector, Cramer twice referred to Equinix as “Equinox.”

“Get out of the data-center stocks,” Cramer told viewers. “I think the data center industry is in decline. I see an industry that’s about to be brought low by new technology, so I think you should sell, sell, sell.”

New technology?
Which new technology? Cloud computing? Believe it or not, he means Nehalem processors. Cramer notes that on Intel’s recent conference call, the company touted strong sales for its new family of Nehalem DP processors for servers, one of which can “take the place of eight to nine older-generation servers.” Cramer did some math, and concluded that data centers will soon be seven-eighths empty.

Investing: Data Center Stocks Soar

The second quarter of 2009 saw exceptional returns for leading public companies in the data center sector, as virtually the entire industry outperformed the major indices and several players posted triple-digit gains.  

The biggest gains for the quarter ending June 30 were seen in the shares that were battered in recent quarters, including Navisite (+242 percent), Terremark Worldwide (+115 percent), and Savvis and Rackspace (each up 85 percent). By way of comparison, the  Dow Jones Industrials gained 11 percent in the second quarter, the best showing for the bellwether index since 2003.

The sector’s strong results hold up when we look at the first half of 2009.