Data-center small caps are up 48% YTD. What are drivers and risks for further gains?

The AI boom has unleashed a massive wave of data-center construction and increased demand for reliable power. An equal-weight Oninvest-compiled index of 50 small caps linked to the industry has gained 48% year to date, outperforming the Russell 2000. However, investors are now questioning whether future AI revenue can justify trillions of dollars in infrastructure spending. Below, Oninvest analyst Aldiyar Anuarbekov looks at two factors that could support the sector’s growth and spotlights three potential beneficiaries.

According to an estimate by international consulting firm JLL, which advises on data-center construction and financing, global investment in new facilities and their equipment could approach $3 trillion by 2030. Around 100 GW of new capacity could come online worldwide between 2026 and 2030, roughly doubling the current base.

Nuclear plants, power grids, and data centers require major investment long before they begin generating revenue. As a result, doubts about the returns on AI spending are now prompting investors to scrutinize energy projects based on forecasts of future data-center demand more closely.

Smaller companies that already have access to local, regulated demand and can quickly fill existing capacity could benefit. Two drivers could support the growth of smaller data-center operators through the end of the year.

Demand for local infrastructure

In France, government agencies and certain public-sector operators are required to host sensitive data in qualified cloud services, while India’s IndiaAI program purchases capacity from providers with domestic infrastructure. Such requirements give local operators an advantage. For example, the European Commission has selected a consortium that includes France’s OVHcloud to build a sovereign cloud for EU institutions. The contract has a maximum value of EUR180 million over six years, though OVHcloud’s share was not disclosed. Such demand favors local operators: U.S. hyperscalers, for instance, can compete for it only if they meet localization, security, and certification requirements.

Price increases amid server-memory shortage

Counterpoint Research forecasts that widely used DDR5 RDIMM server modules could cost twice as much by the end of this year as they did at the beginning of 2025, as manufacturers prioritize memory for AI accelerators. Operators that purchased components and built capacity based on earlier prices may be able to raise prices faster than their own costs increase. OVHcloud has warned that it expects memory costs in September to be nine times higher than a year earlier. This has already prompted the company to raise prices for customers.

However, the same factor is also the main risk: customers may reduce consumption or switch to competitors. Companies that have yet to purchase equipment and build capacity will face rising capex and lower potential returns. The investment case of a given stock therefore depends on three conditions: regulatory advantages must translate into actual contracts, price increases must offset higher component costs, and capacity expansion must not lead to excessive debt or new share issuance.

Oninvest has compiled an index comprising 50 data center companies with market capitalizations ranging from $11 million to $2.5 billion. It covers 15 countries and five segments: data-center and cloud operators, server manufacturers and systems integrators, power and construction-service providers, network infrastructure, and cooling.

The equal weight version of the index, in which each stock has a 2% weight, gained 20.28% in 2025, while the cap weight version lost 8.37%. In the first half of 2026, they rose 45.14% and 28.42%, respectively. By comparison, the Global X Data Center and Digital Infrastructure ETF gained 44.46% over the same period, the Russell 2000 ETF rose 22.56%, and the S&P 500 ETF added 10.09%. Year to date, the two versions of the index have gained 47.75% and 23.28%, respectively. The gap between them shows that the smaller companies in the group delivered the strongest gains.

Oninvest has selected three stocks that could benefit from demand for local infrastructure in three different jurisdictions: the EU, the U.S., and India.

OVHcloud (OVH)

France’s OVHcloud operates 46 data centers and more than 500,000 servers. Its advantage over U.S. hyperscalers lies not in its scale but in its European jurisdiction and certifications for handling sensitive data. In September, OVHcloud received SecNumCloud qualification from French cybersecurity agency ANSSI for its SNC Cloud Platform, its first qualified pay-as-you-go public cloud offering.

In the third quarter of the company's fiscal 2026, ended May 31, revenue rose 6.9% year over year on a like-for-like basis to EUR289.6 million. Public Cloud, its fastest-growing segment, expanded 20.2% to EUR65.6 million. In the first half, adjusted EBITDA increased 5.9% to EUR227.2 million, with a margin of 40.9%. Net debt stood at EUR1.13 billion.

The main risk is the business’ high capital intensity. In the first half, OVHcloud’s capex excluding acquisitions reached EUR238.5 million, or 42.9% of revenue. The company brought forward some investments from subsequent periods to purchase equipment in advance, lock in prices, and secure supplies amid component shortages. In addition, the company announced the departure of CFO Stéphanie Besnier on August 26 without naming a permanent successor.

On Thursday, September 17, BNP Paribas upgraded OVHcloud by two notches to “outperform” from “underperform” and hiked its target price to EUR22 per share from EUR7 per share, implying around 22% upside from Monday’s close. The bank cited strong demand and rising server prices, saying a shortage of computing capacity would allow the company to raise prices for servers and accelerators. BNP Paribas expects organic growth to accelerate to 12-13% in 2027-2028, versus its previous forecast of 8-9%. At the same time, the bank raised its capex forecast for 2027 to 44% of revenue from 36%.

According to MarketScreener data, the stock has four “buy” calls, four “hold” ratings, and two “sell” recommendations. The consensus target price of EUR13.50 per share implies around 25% downside from Monday’s close. The stock already prices in a significant portion of the expectations, and further upside depends on whether the company’s annual results, to be reported on October 20, support BNP Paribas’ thesis of higher prices and increased accelerator utilization.

Rackspace (RXT)

U.S.-based Rackspace helps large companies migrate and manage applications and data in the cloud, both in their own data centers and on platforms operated by Amazon, Microsoft, and Google. The company is now seeking to transform itself from a traditional cloud contractor into an AI-infrastructure operator for regulated industries.

In the second quarter, revenue rose just 1% year over year to $670.1 million. However, an important shift occurred within the business: Private Cloud revenue increased for the first time after five quarters of declines, UBS flagged in a note to clients. It rose 5.5% to $263.3 million in the second quarter, while Public Cloud revenue fell 2.3% to $406.8 million. The net loss widened to $67.5 million from $54.5 million a year earlier.

The company is betting on private AI infrastructure, where customers control the location of and access to their data. Rackspace plans to deploy up to 30 MW of AMD-based computing capacity by 2028. In February, it announced a partnership with Palantir. In September, the company also joined the NVIDIA Cloud Partner program and introduced its Institutional Sovereign Pod, combining NVIDIA Blackwell accelerators with Palantir software for regulated companies and government organizations.

In August, UBS reiterated its “neutral” rating at a target price of $5.30 per share, based on a multiple of around 1.5 times 2028 revenue. The main risk is Rackspace’s debt. As of June 30, the company had around $2.79 billion in debt excluding finance leases and $111 million in cash. In July, Rackspace launched an at-the-market equity offering program of up to $250 million. Although it is not required to use the entire program, new share issuance could dilute existing shareholders.

Another risk is investor confidence in the management. During a special call on July 9, the management cut its 2026 revenue guidance to $2.45-2.55 billion from $2.60-2.70 billion, having decided to redirect some resources toward AI projects. The stock plunged 33.6% that day. Investors later filed a class action alleging that the company had failed to disclose the scale of the pivot and its potential impact on revenue in advance.

According to MarketWatch data, Rackspace has three “hold” ratings from Wall Street analysts. The average target price of $4.77 per share implies 18% upside from Monday’s close.

E2E Networks (E2E.NS)

E2E Networks is an Indian cloud provider that rents out computing capacity powered by NVIDIA accelerators. Its servers are located in data centers in Noida and Chennai.

In the first quarter of the company's fiscal 2027, ended June 30, revenue rose 4.3-fold year over year to INR1.568 billion, or around $16.4 million. EBITDA reached INR1.179 billion, with a margin of 75.2%. Net income totaled INR439 million, or around $4.6 million, versus a loss of INR28 million, or around $0.3 million, a year earlier. The company attributed the growth to the launch of its B200 cluster and ramped up utilization of its fleet, which reached approximately 5,100 accelerators.

On August 31, E2E announced a term sheet worth around INR10 billion, or approximately $104.8 million. Under the agreement, the company is to provide NVIDIA Blackwell accelerators to an Indian sovereign AI customer through June 2029.

E2E’s high capex is a risk: it totaled INR8.7 billion for the quarter, more than five times quarterly revenue. The key question for investors is therefore not whether demand exists, but whether the company can finance its expansion and maintain high accelerator utilization after the new capacity comes online. Regulated rates under government programs, which limit the prices providers can charge, represent another risk.

This text is for informational purposes only and does not constitute personalized investment advice.