In recent years, investment in data centres has become a key topic, especially in the context of growing demand for cloud services and artificial intelligence technologies. The four largest companies - Microsoft, Amazon, Alphabet and Meta - are expected to increase their capital spending on data centres by 40% year-on-year by 2025.

This expansion will benefit not only the hyperscalers themselves, but also the companies that provide the necessary infrastructure for data centres. In this article, we look at three stocks that stand to benefit from this trend.

Arista Networks: the leader in cloud networking solutions

Arista Networks $ANET profiles as a leading provider of cloud networking solutions and has a significant share of the Data Center Interconnect (DCI) market. With rising capital expenditure on data centers, the company is expected to increase sales of its Ethernet switches, routers and software solutions. Microsoft and Meta Platforms, which account for 39% of its total revenue, are key customers.

Arista posted earnings per share of $2.10 in the second quarter of 2024, beating analysts' estimates by 16 cents. Revenue rose 16% year-on-year to $1.69 billion, which was also above expectations. As hyperscalers gradually increase spending, Arista is expected to continue to benefit from this momentum.

Cisco Systems: a giant among giants

Cisco $CSCO is known as a pioneer in networking solutions and continues to deliver a robust portfolio of infrastructure and DCI solutions for major hyperscalers. Although AI is still a small part of their business, Cisco is looking to grow this area and has recently added products to their Meta Platforms portfolio.

The company reported earnings per share of $0.87, which was 2 cents more than analysts expected. Although revenue fell 10.3% year-over-year to $13.64 billion, it was still above consensus estimates. Cisco's focus on investing in cloud services, security and artificial intelligence allows it to remain competitive in a dynamic market environment.

Coherent: Key technology solutions for fast data transfer

Coherent $COHR is developing a photonic solution that is essential for high-speed data transmission within the DCI. The company manufactures high-performance optical transceivers that convert electrical signals into optical signals for transmission over optical fibers. These components are essential to ensure data integrity and reliable connectivity.

In the last quarter of 2024, Coherent reported earnings per share of $0.61, which was a penny more than expected. Revenue rose 9% to $1.31 billion. Given the growing demand for optical technology, Coherent is well positioned for continued growth.

Disclaimer: There is a lot of inspiration to be found on Bulios, but stock selection and portfolio construction is up to you, so always do a thorough analysis of your own.

Source: Investing.com.