Digital infrastructure stocks — those related to data centers, server farms, call centers, cellular communication towers and related industries — have become one of the fastest-growing segments of the global equity markets. The surge in popularity of data center stocks is due to several factors, but it comes down to a simple matter of supply and demand. Put simply, the demand for digital infrastructure is greatly outpacing supply. This dynamic is highly favorable to data center companies and other associated industries and is projected to extend well into the future.
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The developed and developing world increasingly depends on high-tech digital technologies. All that technological growth necessitates a tremendous amount of infrastructure to support it. The global expansion of the internet, and the rollout of 5G cellular technology and smart devices are all contributing factors, but three issues in particular are driving digital infrastructure demand: artificial intelligence, or AI, cloud computing, and blockchain and cryptocurrency. The unprecedented growth of these relatively new technologies has combined with the organic growth of more established technologies and created a deficit in data centers and infrastructure assets. Investors, developers and engineers are rushing to fill the void.
How big is the data center boom? A recent report sponsored by credit-rating agency Moody’s claims that the demand for data centers will double over the next five years. That’s an annualized growth rate of 15%, and some experts think that estimate is low. Another report — this one commissioned by the U.S. Department of Energy (DOE) — makes the astonishing prediction that data centers will be responsible for as much as 12% of U.S. electricity consumption in only three years.
Even if the most-optimistic projections fall short, it’s clear that data centers are poised for rapid, long-term growth. Smart investors are buying and holding the stocks, real estate investment trusts (REITs) and exchange-traded funds (ETFs) that are best positioned to take advantage of this megatrend.
There are many such stocks and funds to consider, and this up-to-date list contains seven of the most promising:
— Digital Realty Trust Inc. (ticker: DLR)
— Vertiv Holdings Co. (VRT)
— Global X Data Center & Digital Infrastructure ETF (DTCR)
— American Tower Corp. (AMT)
— Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
— Equinix Inc. (EQIX)
— Nvidia Corp. (NVDA)
Digital Realty Trust Inc. (DLR)
DLR is a $60 billion REIT that operates more than 300 data centers worldwide. The company has a presence in 25 countries on six continents and controls close to 40 million square feet of rentable space.
In addition to collecting rent, DLR offers its tenants a comprehensive data processing solution called PlatformDIGITAL, which is highly regarded in the digital data industry. It combines the latest hardware and state-of-the-art software to provide clients with a world-class digital data processing, storage and retrieval system.
Wall Street estimates DLR will deliver $5.6 billion in revenue when it reports full-year 2024 earnings. In 2025, analysts are expecting revenue to grow about 9% to just over $6.1 billion.
Like all REITs, DLR distributes a minimum of 90% of its taxable income back to shareholders as a dividend. The stock’s forward annual dividend is $4.88. That equates to a current yield of 2.7%.
Vertiv Holdings Co. (VRT)
VRT is a $44 billion data center lifecycle services company. It designs, manufactures, sells, installs and services a wide range of products that are critical to effective and efficient data center operation.
The company’s products include racking systems, power management systems, communication networks and air conditioning systems.
As might be expected, the great demand for data centers has produced a corresponding demand for the products and services VRT offers. VRT has capitalized on that demand.
In the third quarter of 2024, the company generated earnings of 76 cents a share. That beat Wall Street’s estimate of 69 cents by 10%. That welcomed earnings surprise led to increased estimates across the board. Currently, analysts are projecting earnings per share of $2.69 for full year 2024 and are looking for an increase of 32% to $3.57 in 2025.
Of special interest to tech investors is Vertiv’s strategic partnerships with Nvidia and Microsoft Corp. (MSFT). The collaboration with these two industry leaders demonstrates the company’s leadership position in the data infrastructure industry.
Global X Data Center & Digital Infrastructure ETF (DTCR)
DTCR was established in October 2024 and has accumulated about $138 million in assets since its launch. This innovative data center ETF is a fairly aggressive fund that isn’t suitable for conservative investors. Still, those looking for exposure to digital infrastructure stocks in multiple technology segments should consider this fund.
What makes DTCR unique among tech ETFs is its unconstrained approach to investing in digital infrastructure. The fund’s portfolio managers do in-depth fundamental research and are not afraid to invest in lesser-known companies. They do not limit themselves to any specific sector or geographic area.
DTCR is managed based on the premise that the data center industry will grow at over 9% a year every year for the foreseeable future. The better the digital infrastructure industry does, the better this fund will do. DTCR has an expense ratio of 0.5%.
American Tower Corp. (AMT)
AMT is an $86 billion REIT specializing in cellular communications towers. The company was founded in 1995 in Boston. Today, AMT owns and operates over 224,500 rooftop and freestanding cell phone, Wi-Fi and broadcast antenna towers. About 43,000 of the firm’s towers are located in North America, with the rest spread over Europe, Africa, Asia and Latin America.
In 2023, AMT expanded into the data center segment by acquiring CoreSite — a small but significant player in carrier-neutral data centers. The CoreSite acquisition added 28 high-quality data centers in 11 major U.S. markets to the company’s portfolio.
This company’s comprehensive tower infrastructure holdings and its continuing strategic acquisitions have positioned AMT as a key player in the communications and real estate industries.
The current dividend yield for this REIT is 3.5%.
[READ: 7 Best International Dividend Stocks for Diversification]
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
SRVR is a specialty ETF that invests in data companies, digital infrastructure firms and data center stocks. Most of the fund’s holdings are REITs, but this ETF will invest in any company that fits its criteria.
SRVR has close to $462 million in assets. It looks for fast-growing stocks in cloud computing, communication towers, data centers and digital technology support. The fund will consider stocks in any segment of the technology infrastructure industry. SRVR will not, however, invest in emerging markets or developing markets.
Most of the stocks in the SRVR portfolio were selected from components of the GPR 250 Index and the GRP Pure Infrastructure Index.
The fund is actively managed and has an expense ratio of 0.55%. The current dividend yield is 1.8%.
Equinix Inc. (EQIX)
With a market cap approaching $91 billion, EQIX is the largest data center REIT and one of the largest digital infrastructure stocks in the world.
This REIT’s tenants include cloud computing companies, digital payment firms, health care providers, manufacturing firms, online retailers, banks and insurance companies.
On Oct. 30, EQIX reported its third-quarter earnings for the period ending Sep. 30. The company booked revenues of $2.2 billion for the quarter. That number represented a 2% increase from the previous quarter. Adjusted funds from operations were $9.05 per share, which was about 6.5% more than the $8.49 expected by Wall Street. The company projects about $8.7 billion in total revenue for 2024. If it achieves that figure, it means revenue growth of 7% over 2023.
The current annual dividend for this REIT is $17.04 a share. That translates to a yield of 1.8%.
Nvidia Corp. (NVDA)
The $3.4 trillion chipmaker, NVDA has been associated with AI since mainstream AI platforms burst onto the scene in November 2022. Fewer investors are aware, however, that NVDA is also a key player in the data center industry.
NVDA dominates the market for high-speed graphics processing units (GPUs) and semiconductors that are critical for the efficient functioning of modern data centers.
Nvidia’s GPUs help data centers speed up data processing, train AI models, reduce energy use and support cloud computing services. In short, this company’s products make data centers faster and more powerful.
NVDA always seems to be ahead of its competition when it comes to designing next-generation microchips and bringing them to market. The company features strong revenue growth, solid earnings, sound financials and an excellent reputation with both customers and investors.
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The 7 Best Data Center Stocks, ETFs and REITs to Buy Now originally appeared on usnews.com
Update 12/24/24: This story was previously published at an earlier date and has been updated with new information.
