Investing in the trend data center

For us, data center is a fast-growing sector and there is hardly any way around it, but which still involves a lot of homework for the companies concerned from a sustainabilityperspective.

There are several ways for investors to participate in this growth. For example, with investments directly in the hyperscalers (e.g. Google or Microsoft) or co-location providers (e.g. Equinix) themselves, or in network technology manufacturers (such as Arista or Vertiv) that offer solutions for cooling data centres or in industrial companies such as Schneider Electric that offer special data centre solutions in the area of energy efficiency.

The data storage business

Data centers have become increasingly important in recent years. But what is a data center?

A data center is a facility whose task is not only to store large amounts of digital data, but also to process and manage it. The aim of these facilities is to ensure the availability and security of the data. They therefore serve as the main storage location for all types of technical equipment such as servers, storage hub systems, network switches, routers and firewalls as well as their cabling. Data centers are primarily used in the field of cloud computing, but have recently also become increasingly important in the field of artificial intelligence (AI).

Data centers are indispensable

But are they really indispensable? The answer is yes, and an expansion of data centers is crucial to meet the growing demand. This is not just about data availability and security or support for cloud services or new technologies. Data centers also promote efficiency and cost savings (the use of data centers can reduce the costs of IT infrastructure, maintenance and personnel) and help with the implementation of regulatory requirements and compliance. For example, data centers can help companies to ensure compliance with data protection regulations. Many companies now rely on data center infrastructure to provide their services reliably and efficiently.

Two types of data centers can be distinguished:

• Hyperscalers
  Hyperscalers are the largest and best-known data centers. They usually have more than 5,000 servers and occupy an area of more than 1,000m². Some examples are Amazon (AWS), Microsoft (Azure), Google (Cloud Platform) and Alibaba (Aliyun).

• Co-location providers
  Co-location providers rent their space to corporate customers. The key difference to hyperscalers is that they usually do not own their servers themselves, but only the building with the required capacity. These areas cost around EUR 93 to 465 per 250 to 500 kW and are offered by providers such as Digital Realty, Equinix and Vantage.

AI drives additional demand for data centers - and therefore also energy consumption

Not only certain equity prices that have recently benefited from the boom in artificial intelligence.

The importance of data centers has lately risen extremely sharply due to the increasing demand for artificial intelligence and the associated further increase in computing power. According to an estimate by Morgen Stanley, European data centers alone are expected to increase their capacity fivefold by 2035 - from the current 4,000 megawatts to 20,000 megawatts.

This growth is very pleasing for the industry, its suppliers and investors. However, this growth is offset by the issue of energy consumption. According to calculations, data centers already account for one to two percent of global energy consumption. Any further growth in this industry also increases its energy consumption. AI training in particular consumes an extremely large amount of energy, which can be viewed critically from a sustainability perspective. One example: The power consumption of Google's data centers increased by 17% from 2023 to 2024. According to its own estimates, Google is already responsible for 10% of the global electricity consumption of all data centers.

But Google is not alone with this problem; This year, Microsoft announced that its CO2 emissions last year were 29% higher than in 2020. This was due to increasing investments in the infrastructure required for new technologies such as artificial intelligence.

The International Energy Agency (IEA) assumes that the total electricity consumption of data centers could double from 2022 to 2026 to 1,000 TWh (terawatt hours). This is roughly equivalent to Japan's entire electricity demand.

Sources:
Morgan Stanley: European Data Centres to Grow 5x by 2035, 27 February 2024
orf.at (https://orf.at/stories/3362504/)
Uptime Institute (Digital Infrastructure Authority | Tier Certification & Training - Uptime Institute)
DataScientest (Data Center: What is it? What is it for? (datascientest.com)

The funds Raiffeisen-HighTech-ESG-Aktien and Raiffeisen-MegaTrends-ESG-Aktien exhibit elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.