'Substantially affected by AI': RBC names 3 lesser-known stocks as big beneficiaries

Published Thu, Mar 21 20247:12 PM EDT

The rising demand for generative artificial intelligence has led to a surge in shares of many AI-linked companies like chipmaker Nvidia and ChatGPT backer Microsoft . Now, RBC Capital Markets has identified three lesser-known companies poised to cash in on the AI boom in a big way. In a note to clients on March 19, The Canadian investment bank singled out Australian data center operator NextDC , French electrical equipment giant Schneider Electric and British electrical components maker nVent Electric as firms "substantially affected" by the rise of AI. All three stocks are also traded in the United States. At the heart of the booming trend are the immense computing power and energy demands required to train generative AI models. RBC noted that major cloud companies like Amazon , Microsoft and Google are packing data centers — facilities that host computer servers — with tens of thousands of power-hungry AI chips, driving a surge in demand for infrastructure like cooling systems and electrical equipment. NextDC For Australia's NextDC , that AI-fueled growth has already translated into a massive 1-gigawatt pipeline of projects focused on AI training and inference workloads, according to RBC. To meet that demand, NextDC has announced plans for new data center facilities dedicated to generative AI workloads, including one in Sydney designed "exclusively for AI factories and sovereign AI." RBC analyst Jonathan Atkin raised his price target to $19 a share on March 15, giving it a 9.5% upside. The consensus price target also points to a 9.5% upside, according to FactSet. nVent The electrical component maker is also set to benefit from surging demand for its liquid cooling systems and power distribution units (PDU) — products critical for supporting AI hardware, according to RBC. The investment bank pointed out that over 40% of nVent's data center division's revenue growth this year is expected to come from liquid cooling and PDU. NVT 1Y line Deane Dray, analyst at RBC, expects shares to stay flat over the next 12 months. That's partly because of the stunning 72% rise in the company's shares over the past year. So far this year, nVent's shares have rallied by 23%. Schneider Electric French industrial giant Schneider Electric is another major beneficiary that RBC identified. Orders for the firm's data center cooling systems and power distribution equipment have risen sharply as Big Tech companies build out AI-optimized facilities. "Schneider Electric projects a continued growth rate of over 10% in the data center and network sectors, emphasizing the enduring importance of these segments to the company's overall growth strategy," RBC analyst Mark Fielding noted. Fielding is bearish on the stock, with a sell rating and a price target that points to a 23% downside. The stock has risen 18% this year and is up by more than 45% over the past 12 months. According to FactSet, analyst consensus is on a "hold" rating, with the price target pointing to 7.1% downside. — CNBC's Michael Bloom contributed reporting.