With the increasing need for data center capacity driven by artificial intelligence, cryptocurrency, cloud service providers, and social media companies, the demand for data centers is on the rise. According to Moody’s Ratings, data center capacity will need to more than double by 2028 to meet the growing power consumption. Companies like Digital Realty Trust and Equinix are well-positioned to benefit from this surge in demand by investing in projects globally to meet the needs of large tenants.
While Digital Realty Trust has seen a 9% increase year to date and boasts a 3.32% dividend yield, Equinix has faced challenges after being targeted by short seller Hindenburg Research. Despite losing nearly 4% this year, Equinix maintains a 2.19% dividend yield. The accusations from Hindenburg Research led to an independent investigation, which concluded that Equinix’s financial reporting has been accurate.
Both Digital Realty Trust and Equinix are utilizing joint venture arrangements, preleasing of capacity under construction, and achieving good returns on new investments to maintain their credit ratios and strong liquidity. Despite the risks posed by rapid technological innovation, Moody’s senior credit officer Ranjini Venkatesan believes that these two REITs are better equipped than most of their peers to adapt to the changing environment. Their diverse portfolios and property pipelines are expected to attract data center tenants.
Digital Realty Trust generates 59% of its revenue in the Americas, 31% in Europe, the Middle East and Africa (EMEA), and the remaining from the Asia-Pacific (APAC) region. On the other hand, Equinix derives 44% of its revenue from the Americas, 34% from EMEA, and 22% from APAC. Both companies have long-standing relationships with hyperscalers and a diverse tenant roster, positioning them to win business from large hyperscaler clients expanding into new markets.
As countries implement data privacy and sovereignty rules, the need for data to be processed and stored within their borders will increase. Digital Realty Trust and Equinix, with their proven global track records, are poised to capitalize on this trend. The increasing demand for data center capacity presents a lucrative investment opportunity for those looking to benefit from the growing reliance on digital technology.