6 Lesser-Known Data Center Stocks to Add to Your Watchlist

Nvidia recently became the world's most valuable public company.

The company's stock price has surged over 158% this year, driven by its strong earnings and the artificial intelligence (AI) boom.

While most of the credit goes to the AI aspect, what many don't know is that Nvidia dominates the AI chip market for data centers, which are touted to be the next big thing.

The company has over 80% market share and it recently posted over four-fold jump in revenue for its data center segment.

Technically speaking, Nvidia is basically selling 5x as many AI chips right now as it was just a year ago.

All this should help paint a picture about the growing demand for data centers.

We at Equitymaster track investing themes like these closely. We've written to you about Data Centers not long ago discussing the stocks which are leading the race.

These include Anant Raj, Railtel, Ahluwalia Contracts, Aurionpro Solutions, Kirloskar, Netweb Technologies, among other prominent names.

In today's article, let's look at some of the lesser known companies that are taking big strides towards data centers.

#1 E2E Networks

First on this list is E2E Networks.

The company is a hyperscaler from India. It focuses on advanced Cloud GPU (graphic processing unit) infrastructure.

E2E Networks offers its services through third party data centers located at some high demand areas like Noida, Mumbai, and Vellore.

The company is frequently in the news for collaborating with companies looking to expand their data centres and AI platforms.

It was listed in 2018 on the NSE emerge platform but recently it transitioned to the main board.

Since listing, the stock is up 1,746%.

As can be seen from the chart above, the recent rally could be attributed to the company's growing focus towards data centers and its strong FY24 performance

For financial year 2023-24, the company's revenue came in at Rs 950 million (m), a growth of around 43% YoY.

While its net profit for the full year more than doubled to reach Rs 220 m.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23	FY24
Net Sales	251	353	519	662	940
Growth (%)	-26%	41%	47%	28%	42%
Operating Profit	10	113	233	338	480
OPM (%)	4%	32%	45%	51%	51%
Net Profit	-94	-12	65	99	220
Net Margin (%)	-37%	-4%	12%	15%	23%
ROE (%)	-33.0	-5.0	22.1	26.5	-
ROCE (%)	-31.5	-3.9	17.1	35.3	-
Dividend (Rs)	0.0	0.0	0.0	0.0	0.0
Debt to Equity (x)	0.0	0.2	0.0	0.0	0.0

Data Source: Ace Equity

For FY25, the company has planned a massive capex of around Rs 8 billion (bn).

To know more, check out E2E Networks' financial factsheet and its latest quarterly results.

#2 Marine Electricals

Next on this list is Marine Electricals.

This innovative marine company has taken a big leap into the data center industry, and leveraging underwater tech for sustainable, efficient data solutions.

The company has 4 subsidiaries, and its manufacturing facilities are located in Mumbai and Goa.

In the past year, the company has bagged a slew of orders from high growth segments like defence, etc.

The primary marine segment also saw good growth aided by the government's focus on indigenous procurement, modernisation of Indian Navy and capacity expansion by shipyards.

In FY24, the company raised about Rs 293 million to fund its capex requirement.

In the past one year, the stock price has rallied 252%.

The good performance on the bourses could be attributed to the company's improving financials along with bright industry prospects.

In its latest investor presentation, the company highlighted that it's getting repeat orders from clients like Adani Connex, Web Werks, STT, Bridge Data Centres, Netmagic, PDG and other global companies like Equinix and BAM -DLR entering India.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23	FY24
Net Sales	2,629	2,513	3,763	4,429	6,220
Growth (%)	-34%	-4%	50%	18%	40%
Operating Profit	284	350	361	431	520
OPM (%)	11%	14%	10%	10%	8%
Net Profit	56	129	130	170	260
Net Margin (%)	2%	5%	3%	4%	4%
ROE (%)	3.9	8.7	7.9	8.9	-
ROCE (%)	9.1	12.4	12.5	14.5	-
Dividend (Rs)	0.0	0.2	0.0	0.0	0.0
Debt to Equity (x)	0.3	0.3	0.2	0.3	-

Data Source: Ace Equity

As part of its growth strategy, the company is foraying into integrated powering solutions for data centres and also expanding product offerings.

Interestingly, promoters of the company have been raking in all the moolah and selling part of their holding for the past 3 quarters.

To know more, check out the latest shareholding pattern of Marine Electricals.

#3 Black Box

Next on the list is Black Box.

Erstwhile known as AGC Networks, Black Box offers connectivity and network solutions, data center solutions, modern workplace and cyber security solutions and technology products to businesses globally.

In 2019, in a move to expand its presence globally, the company acquired Black Box Corporation. Since then, the company has innovated its data center solutions and IT infrastructure.

In the past 1 year, the company's stock price has shot up by 163%.

In FY24, the company delivered good performance across segments which resulted in a 6x rise in its net profit.

Net profit for FY24 shot up to Rs 1.4 bn as compared to Rs 240 m in the year ago period.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23	FY24
Net Sales	49,939	46,740	53,702	62,876	62,820
Growth (%)	170%	-6%	15%	17%	0%
Operating Profit	2,989	3,212	2,803	3,005	4,260
OPM (%)	6%	7%	5%	5%	7%
Net Profit	-800	781	727	237	1,380
Net Margin (%)	-2%	2%	1%	0%	2%
ROE (%)	0.0	1093.7	33.1	8.8	-
ROCE (%)	10.6	58.0	34.8	23.8	-
Dividend (Rs)	0.0	0.0	0.0	0.0	0.0
Debt to Equity (x)	-2.6	0.9	1.1	1.2	-

Data Source: Ace Equity

For the current financial year, the company is expecting the momentum to continue as demand for data centres keeps going up. The management in its most recent call highlighted that it expects a strong pipeline and has a good order backlog.

It's also expanding operations in the cybersecurity space with significant wins in airports and enterprise deals.

Going forward, the company's move of shifting to larger customers and deals may just as well do wonders.

To know more, check out Black Box financial factsheet and its latest quarterly results.

#4 ADC India

Next on this list is ADC India.

The company manufactures and trades telecom & IT networking products.

The company is driving innovation in data center solutions with its cutting-edge technology and robust infrastructure.

In the past one year, shares of the company have rallied 185%.

The stellar performance could be attributed to the strong show it has put up in FY24.

The company's revenue grew almost 30% to Rs 1.8 bn while net profit came in at Rs 210 million as against Rs 80 million in FY23.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23	FY24
Net Sales	781	599	1,207	1,429	1,790
Growth (%)	-9%	-23%	102%	18%	25%
Operating Profit	62	58	117	113	260
OPM (%)	8%	10%	10%	8%	15%
Net Profit	38	36	85	82	210
Net Margin (%)	5%	6%	7%	6%	12%
ROE (%)	9.6	8.7	18.2	16.0	-
ROCE (%)	13.4	12.7	24.5	21.8	-
Dividend (Rs)	2.0	2.5	14.0	4.0	29.0
Debt to Equity (x)	0.0	0.0	0.0	0.0	0.0

Data Source: Ace Equity

With India set to become the 2nd-largest 5G market, the company anticipates significant opportunities in the telecom industry.

It's expecting investments in data centers & broadband to grow, supported by both government & private sector participation.

To know more, check out ADC India financial factsheet and its latest quarterly results.

#5 Techno Electric

Next on this list is Techno Electric.

It's engaged in providing EPC, asset ownership and operations and maintenance services in the power infrastructure industry.

It specializes in rural electrification via the RGGVY program, smart metering infrastructure, and STATCOM devices for reactive power.

The company is now looking to revolutionize data centers with its solutions for more efficiency and scalability.

In April 2024, the company secured several orders worth Rs 40 bn from Power Grid Corporation, Adani Transmission, Millenium Challenge Account, IndiGrid Trust, Damodar Valley Corporation and REC Power Distribution Company.

Before this in January, the company had secured orders worth Rs 17.5 bn for transmission and advance metering infrastructure.

All these order wins have contributed to the steep 320% rise in its stock price in the past 1 year.

For FY24, the company beat all estimates and reported solid numbers. Revenue for the year surged to Rs 16.8 bn, 75% higher compared to FY23.

While net profit more than doubled to Rs 2.7 bn, as against Rs 1.3 bn in FY23.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23	FY24
Net Sales	8,715	8,836	9,992	8,295	15,020
Growth (%)	-12%	1%	13%	-17%	81%
Operating Profit	2,639	2,845	3,131	1,619	2,090
OPM (%)	30%	32%	31%	20%	14%
Net Profit	1,791	1,818	2,639	1,869	2,680
Net Margin (%)	21%	21%	26%	23%	18%
ROE (%)	12.3	11.7	13.9	5.1	-
ROCE (%)	15.1	15.3	17.5	8.2	-
Dividend (Rs)	0.0	10.0	2.0	6.0	0.0
Debt to Equity (x)	0.0	0.0	0.0	0.0	0.0

Data Source: Ace Equity

Going forward, the company's move to expand into data center projects provides good growth potential.

Foreign investors have found quite a liking to this stock as they have repeatedly added stake for the past eight quarters.

To know more, check out Techno Electric's detailed shareholding pattern.

#6 Schneider Electric Infra

Last on this list is Schneider Electric Infra.

The company is a subsidiary of Schneider Electric, a French multinational company specialising in energy management and automation.

Its core business is the manufacturing, designing, and distributing technologically advanced products and systems for electricity distribution.

In March 2024, the company partnered with none other than Nvidia to optimise data center infrastructure.

Under this partnership, Schneider Electric aims to provide data center owners and operators with the tools and resources necessary to seamlessly integrate new and evolving AI solutions.

In April, the company's head for the data centers division said in an interview that boom in demand is only going to grow fuelled by the rise of cloud computing, AI, and other data-centric applications.

In the past 1 year, shares of the company have shot up by 246%.

In FY24, the company's margins improved to double digits while net profit also saw a decent growth of 30%.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23	FY24
Net Sales	13,844	12,971	15,303	17,772	22,070
Growth (%)	0%	-6%	18%	16%	24%
Operating Profit	390	823	960	1,799	2,960
OPM (%)	3%	6%	6%	10%	13%
Net Profit	-296	-10	276	1,236	1,720
Net Margin (%)	-2%	0%	2%	7%	8%
ROE (%)	12.3	13.0	13.9	6.8	-
ROCE (%)	15.1	16.7	17.6	9.8	-
Dividend (Rs)	0.0	10.0	2.0	6.0	0.0
Debt to Equity (x)	0.0	0.0	0.0	0.0	0.0

Data Source: Ace Equity

With momentum seen across all the segments and order book expected to grow, Schneider Electric Infra seems to be in a sweet spot.

FIIs have added stake in the company for the past 4 quarters.

To know more, check out Schneider Electric's financial factsheet.

In Conclusion

Technology's transformative impact is reshaping our lives, work, and interactions from rural communities to bustling urban centres.

Amid this digital revolution, data centres play a pivotal role by providing critical infrastructure to store, process, and manage vast amounts of data.

The Indian data centre industry is poised for a bright future, powered by innovation.

However, investors should not get carried away by the excitement of investing in themes like data centres. Always conduct due diligence on any data center stocks before considering an investment.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...