Capital Area's Malcolm Ethridge names these data centers as the big AI winners

We want to get to the next big question. Can the market continue to rise to every challenge, or are we going to see earnings derail this rally? Our next guest thinks, hey, stocks have some further room to run, at least in the near term. Malcolm Etheridge, Capital Area and Planning Group managing partner, also a CNBC contributor. Malcolm, it's good to see you. Why do you think that there's fuel in the tank? Thanks, Contessa. I think that it's a mistake to try and maybe view this particular market cycle that we're in with AI and the trends that have come from it, just focusing on a traditional valuation lens, right? Considering we don't know exactly where we are in that Gartner hype cycle, right? Have we reached that trough of disillusionment? We really don't know. And so I think that that leaves a lot of opportunity for positives, even if it's not in the Mag 7 or the hyperscalers or Megacap Tech or whatever other name we use to describe them. If we don't use traditional valuation metrics to assess AI opportunities in this market, what are the metrics we should be looking at? Yeah, I think the fundamentals matter a little bit more, right? If we just consider the fact that names like Microsoft and Amazon and Alphabet, they've been investing billions of dollars the last few years into generating large language models that can create technology off the backside of them that we have yet to even really understand what the true value of those is. And so I think there's a lot of intrinsic value still trapped inside of each of these companies that owns one of those large language models. And so that alone is a fundamental that tells us there's still more value there to be realized. We just can't really put a number on it yet because we're still so early in the process of building out the technology. We're gonna use AI to evaluate AI. Yeah, exactly. Malcolm, one of the things that it seems you're very interested in are data centers and the sort of virtuous circle of companies that surround them. Explain that and name some names. Yeah, so if you just consider the fact that I just named three of the hyperscalers, right? Microsoft, Amazon, and Google, I'll stick with them. Each time Microsoft, for example, goes to buy another GPU from Nvidia, it's gotta go into a data center somewhere, which means then that a new data center has to be built, which means that someone's gotta both power and cool that data center. Someone's gotta manage that data center. So I'm looking at names like Digital Realty, for example, which is kind of an obvious one to anybody who's been following this trend. But they're the seventh largest publicly traded REIT right now with a market cap of something like $50 billion. But based on their working relationships among the mega cap tech names alone, I could see them moving up a couple spots and overtaking somebody like Assignment Properties or Public Storage by the end of next year. Because for one, on their last earnings call, they pointed out that half of the bookings, or I should say only half of their bookings right now come from AI-related activity. So that's a lot of opportunity for them. Plus they have these companies beating down their door right now, wanting their own data centers instead of having to co-locate, which has traditionally been Digital Realty's playbook. So to me, they're similar to Nvidia in the sense that they've got way more demand for their product than they have supply. And that's what's gonna drive a stock like Digital Realty even higher in 2025. And you also like a dear old utility, Dominion. Yeah, so Tyler, I know being from Virginia, you know just how much of the world's web traffic flows through Northern Virginia. Dominion is perfectly situated being a Virginia power company. It provides power to basically the entire state. And so what's unique about them is as AI is forcing all of these different energy producers to focus on expansion in a way they haven't in some time, Dominion is perfectly positioned to take advantage of that opportunity that's gonna come from all the rest of this activity we've been talking about.