Jim Cramer’s Sell Block: Data Centers

For Thursday’s “Sell Block” segment, Cramer told viewers they need to sell any data center-related stock while the getting’s still good. He said investors should avoid data center giant Equinix Inc. (EQIX). “All of these stocks, especially Equinix are in the danger zone, “Cramer said. Things look good at Equinix with the stock up 77% on the year, and just a few points from its 52-week high. Plus the company just announced that its buying Switch & Data Facilities Company Inc. (SDXC). However, Cramer said the good times are quickly coming to an end. Data-center firms own buildings in which they house the Internet’s servers. It’s very costly for carriers to do this, so they outsource the work to companies like Equinix. Cramer believes that time of outsourcing might be coming to an end for Equinix. What lead Cramer to this idea? Cramer said he listened to Intel Corporation’s (INTC) conference call, where the company management said its seeing strong sales for its new family of Nehalem DP processors for serves, which allows companies to replace up to eight of their older servers with just one new Nehalem server. “If companies can now reduce their footprint by 87% that will translate to huge losses for the data centers,” Cramer said. He mentioned that Equinix is about to have eight times more space than normal, and its doubtful the company could lease the extra space given the current troubles in the commercial real estate market. An even worse scenario could happen where companies start hosting their own serves internally, ranter than outsource to data centers which are expensive. Cramer said he picked Equinix specifically because of the Switch & Data acquisition. He said the move probably won’t pay off because the future for this business is about to get a lot weaker. He told viewers with an upgrade cycle coming, look for earnings to disappoint at Equinix. “Get out of the data-center stocks,” Cramer said. “I see an industry that’s about to be brought low by new technology, so I think you should sell, sell, sell.” Get the scoop on tomorrow’s hottest trade ideas – TODAY! BeaconEquity.com PREMIER PICKS have an amazing track record. Join this select group and ride the profit wave!

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