How AI Data Center Activism Can Affect Tech Stocks

Not everyone is happy about artificial intelligence (AI) data centers, and that can create new winners and losers in the stock market. While hyperscalers herald these investments as the next wave of technological evolution, the construction of these data centers disrupts communities.

While data center construction is nothing new, AI data centers are gobbling up land, energy, and resources at a rapid pace. This whirlwind of activity has generated enough backlash to curb some AI data center ambitions.

For instance, shots were fired at an Indianapolis councilman’s home and a “No Data Centers” note left at his front door. Residents in a small Missouri town promptly voted out four of its eight city council members after the council approved a $6 billion AI data center project. A petition is gaining momentum that would remove the remaining council members and the mayor.

Job replacement, higher electricity bills, and environmental concerns are among the catalysts fueling public opposition and activism. So far, it hasn’t been enough to stall the industry, but AI investors should monitor such developments and know how they will affect their investments, especially with $64 billion in AI data center projects already delayed or canceled by local opposition, according to Data Center Watch.

The biggest winners of the AI data center backlash

AI data center activism can make it harder for future projects to turn ideas into finished concepts, which is advantageous for existing sites. Companies that have finished AI data center projects or are already deep into multiple projects have less to worry about.

Some AI stocks, like Iren (IREN +0.94%) and Terawulf (WULF +1.26%), stand to benefit because they are already building data centers and generating revenue from some of their sites. The presence of fewer data centers helps these companies charge higher prices for their AI infrastructure.

Edge AI data center stocks also stand to benefit from this change. These types of data centers are much smaller than large-scale AI data centers that eat up multiple gigawatts of energy. Protesters are less likely to rally against these types of data centers, and zoning requirements for them are less complex.

For instance, New York City has approximately 70 edge data centers, some of them set up to handle AI workloads. It wouldn’t be feasible for New York City to handle a site like Iren’s Sweetwater AI data center, which has 2 gigawatts of secured power across 1,800 acres. That’s more than twice the size of Central Park!

One Stop Solutions (OSS +3.23%) is one of the edge data center beneficiaries since it designs the hardware that acts as the backbone for these sites. Honeywell (HON 1.49%) can gain ground for similar reasons, but it is a more diversified and mature business than One Stop Solutions. Honeywell’s building automation segment grew by 8% year over year in the fourth quarter and accounted for roughly 20% of total sales, so it’s not a pure AI play. One Stop Solutions is riskier but better suited to investors seeking exposure to growth stocks.

The biggest losers of AI data center activism

Hyperscalers like Meta Platforms, Amazon, Microsoft, and Alphabet are the biggest losers on the list. These tech companies are investing billions of dollars in AI data centers and have insatiable demand for compute. That will force them to pay higher premiums for available data centers.

Wall Street has been skeptical of big tech’s rising capital expenditures, especially with the possibility of more than $700 billion in AI spending this year. Fewer available AI data center sites can delay revenue recognition for tech giants while making existing infrastructure more expensive.

Construction and electrical providers that primarily serve AI data centers may also take a hit, with infrastructure company Argan and HVAC firm Comfort Systems USA vulnerable to data center activism.

Companies with secured AI data centers, power, and infrastructure will do well in this environment. Tech firms with high capital expenditures and those that benefit from new AI data center construction will be hurt the most.

Investors shouldn’t panic, but they should stay informed and focus on long-term fundamentals over short-term noise. It remains to be seen how much AI data center activism will affect this new wave of technology.