The AI Data Center Boom
The world of capital markets is rife with instances where a megatrend not only boosts the stocks of key players but also catalyzes growth in allied industries. Think of it as the ‘Gold Rush’ analogy – where companies like Nvidia design the essential ‘picks and shovels’ for the artificial intelligence (AI) revolution. But what happens to those powerful chips once they are created? Well, they find a home in specialized data centers – a thriving niche poised for substantial growth.
As AI continues its meteoric rise, the demand for data center storage capacity is set to surge, with forecasts predicting a compound annual growth rate of 18.5% from 2023 to 2027. A recent report even suggests that we can expect a steady influx of 120-130 hyperscale data centers annually for the next decade.
Embracing Passive Income through Data Centers
With the burgeoning market in mind, let’s delve into two data center investments within the real estate investment trust (REIT) industry. These companies not only promise to capitalize on AI-fueled growth but also offer investors a stream of passive income through regular dividend payments.
#1. Equinix: Leading the Data Center Arena
Established in 1988 and headquartered in Redwood City, Equinix (EQIX) stands as a global leader in providing colocation space, interconnection services, and cloud computing solutions. Operating the world’s largest interconnected data center platform spanning over 210 locations across 25 countries, Equinix boasts a market cap of $76.4 billion.
While EQIX stock has seen modest YTD performance in 2024, offering a dividend yield of 2.01%, the company has been consistently increasing its dividend payouts for nearly a decade. In the first quarter, Equinix reported a 6.5% surge in revenues to $2.13 billion. Despite a slight dip in Funds from Operations (FFO) per share, Equinix remains a stalwart in the industry, maintaining a track record of 85 consecutive quarters of positive revenue growth.
#2. Digital Realty Trust: A Pillar in Data Center Realty
Founded in 1994 and based in San Francisco, Digital Realty Trust (DLR) emerges as a prominent player in the data center REIT landscape. With a market cap of $49.8 billion, DLR has been offering data center solutions globally, catering to businesses in need of robust IT infrastructure. The stock has surged by 20.6% YTD, presenting investors with a dividend yield of 3.06%.
While Digital Realty’s recent financials showcased a mixed bag, the company’s cash net operating income surged by 3.8% year-over-year. It held a robust cash balance at the quarter’s end, positioning itself for sustained growth. Analysts view DLR stock favorably, with a ‘Moderate Buy’ rating and a notable upside potential from current levels.
Both Equinix and Digital Realty Trust epitomize the lucrative potential of AI data centers, embodying reliability, growth, and passive income for discerning investors.
