Strong 2Q Recovery for Data Center Stocks

After a dismal first quarter of 2008, data center stocks roared back to huge gains in the second quarter, with 9 out of 12 publicly held companies scoring double-digit gains. All but one industry stock beat the Dow, which declined 7.44 percent in the second quarter, while the S&P 500 fell 3.3 percent and the NASDAQ managed a 0.6 percent gain.

The surge marked a solid recovery from the first quarter, when all 13 stocks we track lost ground (one company, Bladelogic, has since been acquired). Shares of data center specialist were depressed early in the year by concerns that the credit crunch and losses in the financial sector would lower demand for data center services.

In recent months it has become clear that demand is holding steady, prompting the largest players in the field - including Equinix (EQIX) Digital Realty (DLR), Terremark (TMRK) and Switch and Data (SDXC) to raise their revenue guidance for Wall Street.

Rackable (RACK) has benefitted from growing interest in servers for high-density cloud computing and data center containers, two of the specialized markets targeted by the company. Rackable appears positioned for its ICE Cube container to compete for business from Microsoft and others, and has just announced a new line of Extreme Efficiency (XE) servers.

Also bouncing back from rough first quarters are specialists in the virtualization and content delivery sectors, including VMware (VMW), Akamai (AKAM) and Limelight Networks (LLNW).

The only data center specialist that underperformed the Dow this quarter was Savvis (SVVS), which has reported a slower sales cycle than anticipated for its managed hosting offerings.