Savvis and datacenter businesses are here to stay

Savvis Inc (NASDAQ: SVVS) announced transaction with Microsoft Corporation (NASDAQ: MSFT) yesterday is another clear sign that the datacenter business is here to stay.

Savvis announced that Microsoft would assume leases for 300,000 square feet of datacenter space in Santa Clara that Savvis controls, the heartland of Silicon Valley. In return, Savvis receives $200 million. Microsoft gets greater control of more datacenter space and Savvis gets rid of below-market-rate leases that were signed when the industry was in the dump.

We began blogging that investors should jump into Savvis in April 2006 when the stock was selling for $26. Today, the stock is at $50, just shy of 100% profit. The datacenter industry was a boom-bust posterchild sector for Internet 1.0. Many of these companies went into or flirted with bankruptcy.

However, while the two largest stand-alone datacenter companies, Savvis along with Equinix Inc (NASDAQ: EQIX), have done considerably well since we started blogging about their merits as investments over one year ago, these stocks are still underfollowed and underknown. The fundamentals of this industry continue to improve and the barriers to entry continue to expand.

Stay with both Savvis and Equinix, and if you do not own them, I'd suggest buying them and putting them away. These are difficult assets to build and maintain and companies such as Microsoft, Google Inc (NASDAQ: GOOG) and Level 3 Communications Inc (NASDAQ: LVLT) want to own more of them.