Forget Appen, this could be the best ASX 200 stock to buy for the AI boom

Goldman Sachs thinks this could be the way to play the AI boom.

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If you're looking for a way to gain exposure to the artificial intelligence (AI) boom, then you might be best skipping Appen Ltd (ASX: APX) and focusing on an ASX 200 stock.

Which ASX 200 stock?

According to a note out of Goldman Sachs, its analysts think investors should be buying data centre operator NextDC Ltd (ASX: NXT) for their AI exposure.

This morning, the broker reiterated its buy rating and $14.96 price target on the company's shares.

Based on the current NextDC share price of $12.31, this implies a potential upside of almost 22% for investors over the next 12 months.

What did the broker say?

Goldman was recently at an investor day event held by global data centre giant Equinix (NASDAQ: EQIX).

Pleasingly, the broker came away from the event feeling ever more confident on the outlook for data centre demand thanks to the AI boom. It commented:

EQIX believes AI will be a major growth driver in the next quarter century, with expectations of AI representing 15% (US$21bn) of its 2026 $140bn TAM. Given AI compute will operate in public cloud, private cloud and in between, EQIX believes its entire suite of assets will benefit (xScale hyperscale facilities; and Co-location facilities).

To date, it is already in discussions with existing hyperscale customers to design new, more dense AI targeted facilities, and is considering expanding its xScale investment aspirations given this demand, while believing co-location benefits are likely to be marginally longer dated, but still significant given latency requirements for inference workloads.

As for Australia, it said:

Overall we believe commentary at the Equinix day supports our positive thesis around the benefits of AI in driving demand (hyperscale & co-location) within the Australian data centre market.

We also believe the re-iteration of xScale return targets and marginally stronger (vs. Jun-21) revenue CAGRs for Equinix are positive, given the significant impacts from inflation/power costs on the sector.

All in all, Goldman believes the future is very bright for this ASX 200 stock.

Motley Fool contributor James Mickleboro has positions in Nextdc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Appen, Equinix, and Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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