Insights from Sterling Infrastructure’s Earnings Conference Call Signals Bullish Future For Data Center Industry [GeoWire Weekly No. 176]

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Highlights MS Microcaps Virtual Microcap Conference – 18 hand-picked companies, 5 special guests – mark it on your calendar! Wait… STARTS TOMORROW Data Center Commentary: Focusing on Sterling Infrastructure, Inc. (NASDAQ:STRL) Post-Earnings Commentary, Sentiment and Outlook: Data Center Market Uncertainty – Mixed signals from industry leaders: Dell, Meta, and NVIDIA remain bullish, while Microsoft’s lease cancellations have raised concerns about potential cooling. Strong Demand & Backlog Growth – Sterling’s E-Infrastructure backlog grew 53% YoY to $1.37 billion, with a project pipeline extending into 2026. Geographic & Strategic Expansion – The company is expanding into new regions like Texas and Ohio while pursuing M&A and new capabilities in electrical and mechanical infrastructure. Challenges & Execution Risks – Power constraints could delay some projects for 3-4 years, and large-scale data center builds introduce greater complexity. Positive 2025 Outlook – Sterling forecasts double-digit revenue growth and expanding margins, reinforcing confidence in long-term data center demand..

Before we get into this week’s focus subject on the data center sentiment debate, we wanted to give you a quick, but very important reminder that March 3rd (tomorrow) through March 7th, I will be hosting and moderating MS Microcaps’ First Multi-Day Virtual Microcap Conference, which, as we’ve already conveyed, is the first of its kind in that it’s a 5-day stretch of hand selected “no pay to play” guests—18 companies and 5 special presenters—where the company invites were based on quality-driven criteria (sprinkled with a few turnarounds) that we often assign to stocks we track closely and maybe end up on model portfolios on GeoInvesting, and in the Microcap Quality (Multibagger) Index (MSMqi) on MS Cliffnotes at Substack.

Now, onto a very familiar subject, and is actually quite relevant due to the fact that Darryll Dewan, the current CEO of multi-bagger Tss, Inc. (NASDAQ:TSSI), will be one of our expert guest speakers who will be walking us through his journey to the now burgeoning AI data center industry.

Data Center Industry At A Crossroads Already?

Some people might  say that the data center industry itself is currently at a crossroads already and in a “hot or not” debate in the sphere of investing. In some corners, there are mixed signals causing investor uncertainty. On one hand, industry leaders like Dell Technologies Inc. (NYSE:DELL), Meta Platforms, Inc. (NASDAQ:META) and Nvidia Corporation (NASDAQ:NVDA) assert that the market remains incredibly healthy, with NVDA CEO Jensen Huang forecasting that data center infrastructure spending could reach $2 trillion in the next four to five years. 

Conversely, reports indicate that Microsoft has canceled certain data center leases, raising concerns about potential oversupply. For what it’s worth, the company did deny those rumors. The company’s CEO, Satya Nadella, also talked about potential overspending going on with AI, in a video interview a couple weeks ago with YouTuber Dwarkesh Patel.

Amidst this debate, insights from companies deeply involved in data center infrastructure are invaluable. Sterling Infrastructure, Inc. (NASDAQ:STRL) (construction company) operates through three primary segments: E-Infrastructure Solutions, Transportation Solutions, and Building Solutions. It’s currently the top performer (1624%) on our infrastructure screen we created in 2016, currently up an average of 228%.  

Notably, their E-Infrastructure segment encompasses the growing data center business. In their recent Q4 2024 earnings call, CEO Joe Cutillo provided a comprehensive outlook on the data center landscape for the upcoming years.

Data Center Demand: The Reality vs. Market Perception

While external narratives around data center demand have been mixed, Sterling’s leadership provided a starkly different picture—one of accelerating demand rather than slowing growth. Cutillo asserted that hyperscalers like Microsoft, Google, and Amazon are not reducing their investment but rather restructuring their financial models to accommodate rapid expansion.

Contrary to reports suggesting a slowdown, Sterling is experiencing a surge in demand, with new players entering the market and existing customers seeking long-term capacity commitments. The company is fielding requests to reserve capacity for projects extending into 2026, 2027, and even 2028.

Expanding Horizons: Sterling’s Growth Strategy in Data Centers

Sterling Infrastructure’s (STRL) latest earnings call reaffirmed its position as a key player in the booming data center construction space. CEO Joseph A. Cutillo emphasized that demand remains exceptionally strong, driven by AI, cloud computing, and large-scale infrastructure investments.

With mega-projects like Project Stargate—a $500 billion initiative—reshaping the industry, STRL faces both opportunities and challenges in expanding its geographic footprint. Cutillo acknowledged mounting pressure from customers to expand into new regions, and while the company has leveraged its transportation assets to secure data center projects in the Rocky Mountains, Texas, and Ohio, the inefficiencies of deploying crews across long distances present cost challenges.

To combat this, Sterling is aggressively pursuing M&A opportunities to establish a stronger local presence in these high-demand markets. However, finding an acquisition target that aligns with Sterling’s high execution standards has proven difficult. Additionally, the company is evaluating an organic expansion strategy, potentially setting up new hub locations that could sustain its long-term data center ambitions.

Strong Demand and Backlog Growth Fuel Optimism

Sterling’s E-Infrastructure segment—where data center work falls—has emerged as the company’s dominant growth driver. By the end of 2024, the segment’s backlog grew 53% year-over-year to $1.37 billion, with much of that driven by data center projects. This represents a high-probability pipeline exceeding $500 million, with Sterling historically winning nearly 100% of future phase work on its multi-phase projects.

Beyond backlog growth, the company has already secured additional data center projects in the Mid-Atlantic and continues to strengthen its presence in the Southeast, where demand is strong. Notably, Sterling secured a $35 million data center contract post-quarter, reinforcing its ability to win new business despite growing competition.

Profitability and Operational Strength in E-Infrastructure

Sterling’s data center-related margins have been a standout. Historically achieving 20%-plus margins, the company reported that E-Infrastructure margins reached 18.7% in Q4 2024, up 140 basis points year-over-year—a strong signal of improving profitability.

This margin expansion is primarily driven by project mix—Sterling’s shift away from smaller industrial warehouse jobs toward large-scale, mission-critical projects has boosted efficiencies. The company expects continued margin expansion in 2025, forecasting E-Infrastructure growth in both revenue and profitability.

Looking further ahead, Cutillo painted an optimistic picture for 2026 and 2027, stating that a “very big pool of mega-projects” in the data center and semiconductor space could drive substantial future growth. However, he did acknowledge that the timing of these projects remains uncertain, as large-scale developments often face bureaucratic and logistical hurdles before breaking ground.

Expansion of Data Center Capabilities

Currently, Sterling’s role in data centers is centered on site preparation, including grading land, installing wet utilities, and building duct banks. However, the company has started expanding into dry utilities, securing electrical licenses that allow it to install conduit systems—an important next step in broadening its scope.

In the long term, Sterling is actively searching for an M&A opportunity in the electrical and mechanical infrastructure space. Ideally, this would involve acquiring a company with expertise in both data centers and semiconductors, allowing Sterling to extend its capabilities further up the construction value chain.

Power Constraints: The Biggest Near-Term Challenge

Despite the overwhelmingly bullish outlook, power availability is emerging as a major bottleneck for the industry. Cutillo pointed out that utilities are struggling to keep up with data center demand, delaying some projects until adequate power supply is secured.

The impact of this constraint is significant—Sterling’s backlog could be even larger if power availability weren’t an issue. Cutillo noted that some bids have been delayed as developers wait for utility approvals, though Sterling has mitigated this risk by focusing on projects where power commitments are already in place.

Cutillo doesn’t expect this issue to be resolved quickly, predicting power constraints could persist for another 3–4 years unless alternative solutions, such as on-site power generation, become more widespread. This challenge represents one of the few external risks that could slow Sterling’s otherwise rapid growth trajectory.

Execution Risks on Large, Multi-Phase Projects

Another challenge tied to Sterling’s expansion into massive data center developments is the increasing execution risk that comes with these complex, multi-phase projects. Analyst Brent Thielman pressed Cutillo on the company’s ability to maintain high margins at scale. While Cutillo expressed confidence in Sterling’s vetting process and ability to deliver efficiently, the sheer size of these projects presents inherent risks.

Historically, Sterling thrived on rapid execution and speed, which has been a competitive advantage. However, as the company takes on larger, more intricate projects, ensuring cost control, labor efficiency, and on-time delivery will be critical to maintaining its strong profitability.

Market Softness in Adjacent Areas

While data center demand remains red-hot, management acknowledged some softness in adjacent markets—specifically e-commerce and small warehouse construction. Though this weakness doesn’t directly impact Sterling’s data center pipeline, it does highlight uneven demand trends across the broader E-Infrastructure segment.

The company expects e-commerce activity to pick back up in Q2 2025, which could help offset any resource imbalances. However, the focus remains on securing and executing high-margin data center projects, where demand is expected to be the strongest.

Financial Performance and 2025 Outlook

Sterling’s full-year 2024 results paints a picture of momentum:

• E-Infrastructure revenue grew 19% to $1.05 billion, driven largely by data center growth.
• Total company backlog reached $2.61 billion, up 46% year-over-year.
• 2025 guidance forecasts:
  • Revenue of $2.8–$2.9 billion (10–14% growth).
  • EPS of $5.90–$6.21 (18–25% growth).

Data centers are expected to remain the primary growth driver, contributing to Sterling’s forecasted high single-digit revenue growth and continued margin expansion in E-Infrastructure.

Final Thoughts: A Market on the Brink of Expansion

Sterling Infrastructure’s Q4 earnings call painted a highly optimistic picture of data center growth, reinforced by:

• Strong customer demand, driven by AI and cloud computing.
• Record backlog levels, providing visibility into 2025 and beyond.
• Expanding regional footprint, supported by organic and M&A-driven growth.
• Margin expansion, benefiting from a favorable mix of large-scale projects.

However, two key risks loom:

• Power constraints, which could delay project timelines over the next few years.
• Execution complexity on large-scale projects, requiring Sterling to maintain its strong track record of efficient delivery.

Despite these challenges, Sterling is positioning itself as a dominant player in mission-critical infrastructure. With AI, semiconductors, and cloud expansion fueling demand, the company appears well-equipped to ride the wave of data center investment through 2025, 2026, and beyond.

If its projections hold true, the coming years could mark a transformational period for the broader data center ecosystem.

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Again!! Put every day of the MS Microcaps Virtual Conference on your calendar and be sure to keep in sync with the 5-day event. We’ll be sending periodic reminders so you stay in the loop.  As always, recording will be available if you cannot make it.  But as you are well aware, some of the best arbitrage is best consumed live.

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~ Maj Soueidan, Co-founder, GeoInvesting

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The post Insights from Sterling Infrastructure’s Earnings Conference Call Signals Bullish Future For Data Center Industry [GeoWire Weekly No. 176] appeared first on GeoInvesting.

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