1 Emerging AI Stock You Won't Want to Overlook

Artificial Intelligence (AI) is a hot topic these days. Companies are scrambling to learn how to leverage the power of AI to drive their businesses. That's providing a big boost to companies developing and supporting the technology.

Since AI relies on data, data centers could see a massive boost from AI as the technology becomes more mainstream. It's already starting to drive incremental growth for leading data center REIT Equinix (EQIX -2.44%). Here's why investors won't want to overlook this emerging AI stock.

Into AI before it was popular

AI has been a hot topic of conversation on quarterly earnings calls this year. Unsurprisingly, AI was part of the conversation on Equinix's first-quarter conference call. In discussing AI, CEO Charles Meyers stated: "It's interesting because ChatGPT has created a media frenzy around AI. But the reality is we've seen AI-related opportunities in our pipeline for the last several years."

The CEO then discussed how companies are thinking about their data relative to AI. He framed it around the two factors driving AI: training and interface. 

When it comes to training AI models, companies are thinking about where to place their data. Meyers noted that:

And what we're seeing is actually a trend toward people saying, we want to take our data and place it sort of inter cloud. We want to have control of that data. We want to intersect it with other data sources and we want to be able to move it into and out of clouds as appropriate for these things. And so we have seen some large training model training opportunities. Those are partially economically driven, just it's actually cheaper to do on sort of dedicated hardware.

In other words, companies want to control when it comes to AI training. That typically means having dedicated space in a large data center.

He then pivoted to AI interface (think ChatGTP). He noted that these deals "are going to be a bit more interconnected, are where people are actually deploying AI inference use cases that are sort of -- and I think we're going to be uniquely well suited -- is when insights are both, one when data sets are dynamic and they're updated frequently, and they're taking in a lot of new data." The need for interconnection and speed to handle lots of data suggests that the data center demand from AI interface will come from locations close to end users (i.e., edge computing).

These distinct needs drive the company's overarching view that AI will require different types of data centers. Meyers believes Equinix is ideally suited for this mix. He stated: "I actually think some of the training stuff...is going to be more suited to our xScale portfolio. And I think some of the inference stuff is probably going to land in the retail portfolio at the digital edge."

Capturing emerging opportunities

Meyers believes that while we're in the "early days" of AI-driven data center demand, it will be an "exciting incremental opportunity for the company." He commented that "AI is only going to add fuel to [the] fire" of demand for data center capacity as companies continue to transform their business through technology.

It's already seeing some AI-related demand. Meyers stated on the call that:  

We're also seeing the unique breadth of our product portfolio across retail colo, interconnection services, xScale, and digital services resonate strongly with customers as they embrace rapidly emerging opportunities in AI. We've closed several key AI wins over the past few quarters and are seeing a growing pipeline of new opportunities directly and with key partners for both training and inference use cases that benefit from the unique performance characteristics and multi-cloud proximity of our platform. 

The CEO notes that it's already signing contracts with customers to back their AI endeavors. It's seeing demand for both training and interface. The REIT is in a great position to capitalize on these opportunities thanks to its extensive global data center portfolio. It has the right space to meet customers' specific AI needs.

AI-powered growth ahead

We're still in the early days of the AI age. However, it's already driving incremental demand for leading data center operator Equinix. The company believes that its extensive portfolio, which features larger xScale data centers and smaller retail colocation facilities, gives it a competitive advantage to capitalize on this opportunity. These features make it an AI stock that investors won't want to overlook.