The data centre boom may be powered by artificial intelligence (AI), but AI chips are only part of what keeps these enormous facilities running. Powering every data centre requires a huge network of electrical equipment that plays an important role in managing enormous power loads. As companies pour money into new computing capacity, that supporting infrastructure is becoming increasingly important – and lucrative for the businesses supplying it.
One Canadian manufacturer is already benefiting from this shift, with data centre projects contributing to rapid demand growth, a substantial order backlog, and continued investment in production capacity.
In this article, I’ll look at a top growth stock and explain how the data centre boom could translate into years of growth for this Canadian company.
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Hammond Power Solutions stock
If you want exposure to the data centre boom without buying another chip or software stock, Hammond Power Solutions (TSX: HPS.A) offers an interesting alternative.
The Guelph-based company makes dry-type transformers, power quality products, related magnetics, and power conversion systems. Its products are used across electrical distribution networks and serve industries ranging from data centres and commercial construction to mining, oil and gas, and wind power.
After soaring by 105% over the last year, Hammond stock now trades at $239.69 per share, giving the company a market cap of $2.2 billion. However, shares have cooled by about 20% over the last three months, making it look like an attractive stock to buy on the dip. The company also offers a small 0.5% dividend yield.
That recent pullback comes after a massive longer-term rally, but Hammond’s underlying business momentum remains strong. Data centre investment has become a major growth driver for the company in the U.S. market. At the same time, electrification and power infrastructure spending are also adding to demand for its products.
Data centre demand is driving record growth
In the second quarter, this Canadian company posted record sales of about $325 million, up nearly 45% year-over-year (YoY). Its U.S. and Mexico sales surged 73% YoY to roughly $273 million, driven largely by higher data centre shipments, modestly improving industrial markets, and better price realization.
Canada was a weak spot, as its home market sales fell nearly 24% YoY due partly to the timing of large custom projects, along with softer market conditions and increasingly competitive pricing.
Still, profitability showed improvement as Hammond’s gross margin climbed to 31.5% from 30.7% a year ago. Price increases implemented to offset tariff-related input costs helped the sequential improvement. A higher custom product mix and operational improvements also supported margins.
Why the growth runway remains attractive
Clearly, the data centre boom may still have a long way to go, and Hammond has been adding capacity to capitalize on the opportunity.
The company’s second-quarter backlog was nearly 97% higher than a year ago, primarily because of large project orders tied to data centre activity. Although the backlog fell 6.9% sequentially as shipments exceeded new bookings, it remained at significant levels. That should help Hammond utilize its expanded manufacturing capacity while improving lead times.
Another positive about this data centre-linked stock is its new Mexican facility, which is helping improve operating leverage. Recently, Hammond also completed its acquisition of AEG Power Solutions, which could accelerate its growth further in the long run. Given all these positive factors, Hammond gives investors a different way to benefit from rising AI data centre investment. Its record sales, elevated backlog, expanding manufacturing footprint, and strong U.S. demand make it an attractive Canadian stock to consider after its recent pullback.
