According to UBS, the data center sector is expected to grow rapidly in the coming years. The investment bank expects growth of between 15% and 20% for 2024 and 2025, and “healthy” double-digit growth in subsequent years. This is based in part on the expected growth of hyperscalers, which do much of the cloud computing for AI applications. Data centers host large amounts of computing power needed for AI workloads, and that need is expected to grow as many technology companies rapidly develop AI infrastructure. Large language models require a lot of data center capacity. “At this stage, the entire data center-related value chain appears to be growing in a universally healthy manner for capital goods companies,” UBS analysts wrote in an April 5 note. Large-scale electrification and safe electrical equipment are expected to grow as energy consumption increases. “This space faces a near-term rapid growth outlook that is constrained by supply rather than demand and has potential for structural growth driven by data creation (IoT), [machine learning] AND [generative] AI and data sovereignty considerations,” analysts said. The bank named three stocks that will follow the trend: US-listed energy management company Eaton, French energy technology company Schneider Electric and US energy technology firm Cummins Says Eaton is key The US plays data centers, with 14% exposure and “broad favorable trends” in electrification, while Cummins has “favorable exposure to backup energy ” in data centers. UBS gave Eaton a price target of $330, which represents a marginal downside. It gave Cummins a price target of $321, or 9.7% upside potential. Schneider is “l “most direct European company” on this growth theme, with 19% of sales in data centers and networks, and benefits from the entire value chain, from electrification to building management and cooling, according to UBS, which gave the stock has a price target of 250 euros ($270), i.e. an upside potential of around 20%. — CNBC’s Michael Bloom contributed to this report.