1 Russell 2000 Stock to Buy and Hold for Data Center Upside

The Rise of Data Centers

The explosive rise of artificial intelligence (AI) and cloud computing has ignited an unparalleled demand for data centers over the past year. Although the need for data centers was already gaining traction prior to the AI revolution, greatly enhanced by the burgeoning bitcoin mining industry, the tech industry’s swift pivot towards AI has accelerated their construction and utilization. The data center market demonstrates no signs of slowing; projections indicate that it is poised to reach a staggering $416.1 billion by 2024 and climb to $624.1 billion by 2029, representing a steady compound annual growth rate (CAGR) of 8.5% from 2024 to 2029.

Investor Opportunity: Belden Inc.

For investors looking to gain exposure to this burgeoning market, one standout opportunity within the Russell 2000 Index (RUT) is Belden Inc. (BDC). Founded in 1902 and based in Saint Louis, Belden designs and markets high-performance signal transmission solutions for mission-critical applications globally. The company provides an extensive array of products, including copper and fiber connectivity solutions, as well as power and cooling systems specifically tailored for data centers. Moreover, Belden offers comprehensive network solutions catering to industries such as 5G, building automation, commercial real estate, healthcare, education, and mass transit.

Belden’s Growth and Performance

Valued at a market cap of around $4.8 billion, Belden’s stock has appreciated notably, surging 50% in 2024, vastly outpacing the broader S&P 500 Index’s 20.3% year-to-date return. Despite its focus on growth, Belden also rewards its shareholders; on August 22, the company announced a quarterly dividend of $0.05 per share, scheduled for distribution on October 8, bringing its annualized dividend to $0.20 per share—yielding 0.17%.

Furthermore, Belden announced a $300 million share repurchase authorization on September 12, bringing its total when combined with the previous $115 million plan to an impressive $415 million. CFO Jeremy Parks attributes this successful transformation and disciplined operations to consistent revenue growth, improved margins, and strong free cash flow.

Q2 Earnings Beat Analysts’ Estimates

Belden’s Q2 earnings results, released on August 1, impressed Wall Street as they exceeded projections. The company reported revenue of $604.3 million, down 13% year over year but surpassing the forecast of $574.2 million. Adjusted earnings of $1.51 per share declined by nearly 21% from the previous year, yet still exceeded estimates by an impressive 11.9%.

CEO Ashish Chand explained, “In this dynamic environment where customers continue to work through inventory, our team executed well, delivering moderate sequential growth in orders for the third consecutive quarter.” Additionally, the company closed its acquisition of Precision Optical Technologies during the quarter, significantly bolstering Belden’s fiber portfolio.

Future Projections

Management anticipates Q3 revenue to range between $635 million and $650 million, with adjusted EPS expected between $1.55 and $1.65. In the longer term, Belden projects an annual EPS growth between 10-12% through 2028, alongside mid-single-digit revenue growth.

Analyst Expectations

Analysts covering Belden project that profits will dip 11.6% annually in fiscal 2024 to $6.04 per share, but are expected to rise by 28.6% in fiscal 2025 to $7.77 per share. Recently, William Stein from Truist Securities issued a “Buy” rating on BDC, despite downgrading the broader group on valuation concerns. Stein holds optimistic views on Belden, considering its potential similar to that of AI chip giant Nvidia (NVDA).

Overall, Wall Street remains highly optimistic about BDC stock, with a unanimous “Strong Buy” rating from all five analysts covering it. Although the stock is trading at a premium to its average price target of $114.60, the Street-high target of $124—established by Goldman Sachs—suggests an expected upside of 7% from current levels.

Valuation Perspective

From a valuation standpoint, BDC stock is currently priced at 19.39 times forward earnings and 1.96 times sales, both of which present a healthy discount relative to the technology sector medians of 24.48x and 2.91x, respectively. This suggests that Belden stock is reasonably valued at its current levels, making it an attractive investment opportunity in the midst of the ongoing data center boom.