Data centers are expected to grow in the 15% to 20% range a year and maintain solid recurring revenue, driven by the coupling of a strong secular trend toward the digitization of the economy and the reduction of infrastructure-related costs through outsourcing, says Clayton Moran, Senior Analyst at The Benchmark Company, LLC.
“E-commerce, online video distribution, cloud computing, algorithmic financial trading, mobile data — all these developing sectors have strong secular growth outlooks and utilize Internet Protocol and Internet infrastructure. IP traffic is forecast by Cisco to grow 30% to 40% per year,” Moran said.
Moran points to Internap Network Services Corp. (INAP) as a compelling “buy”-rated, small-cap stock in the data center industry. He says INAP‘s stock has recently dropped 40%, and he sees it as an opportunity, with the stock currently priced at $5.18 and a target price of $8 per share.
“One, Internap operates defensive telecom businesses with solid growth prospects. Two, Internap has no net debt with ample credit. Three, data center industry growth has accelerated. Four, there is a powerful industry consolidation trend, and Internap is an acquisition candidate,” Moran said.
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