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LivestreamMenuInside one of Equinix’s internal operations at Equinix Data Center in Ashburn, Virginia, on May 9, 2024.Amanda Andrade-Rhoades | The Washington Post | Getty Images
The backlash against artificial intelligence data centers could prove a tailwind for real estate investment trusts in the sector.
Protests have sprung up nationally as hyperscalers look to build data centers to train and run their AI models. Not only do the data centers take up large amounts of land, they consume enormous amounts of electricity and water and are noisy.
The debate is only expected to heat up heading into the midterm elections. A recent NBC News poll found that 69% of respondents oppose the construction of AI center centers in their area.
There are already more than 4,700 data centers across the country — a number expected to grow exponentially. PwC projects that annual data center spending will rise to $1.8 trillion in 2050 from roughly $800 billion in 2026. Some states are stepping up with legislation to restrict or ban construction, and a moratorium is already in place in New York.
Using REITs to play AI
While the hyperscalers are getting all the attention, another way to play the AI data center race is through real estate investment trusts. They are essentially landlords that build, own and then lease space to multiple tenants, including Amazon, Apple and Oracle, according to National Association of Real Estate Investment Trusts, an industry group.
“Amid political and community push-back, while new projects could see delay, it could be a positive for existing projects/DC [data center] REITs which have pricing power driven by continuously expanding compute demand,” Mizuho analyst Vikram Malhotra said in a Sept. 1 note.
Data center REITs make up 13% of the total U.S. REIT market capitalization of $1.5 trillion, Nareit said. The public REITs own about 275 data centers in the United States — less than 10% of the owner/operated and leased data centers in the country, the group said.
There are three data center stocks in the FTSE Nareit Equity REITs Index: Digital Realty Trust, Equinix and Iron Mountain.
| DLR | Digital Realty Trust | 2.59% | 23.3% |
| EQIX | Equinix | 1.99% | 36.9% |
| IRM | Iron Mountain | 2.96% | 42.0% |
Source: FactSet
Equinix, which recently signed a deal with Nvidia, is the largest, with a market value of roughly $102 billion. It has a 1.99% dividend yield and has climbed about 37% year to date. Its second-quarter adjusted funds from operations (AFFO) topped expectations when Equinix reported results and raised its full-year guidance in July.
Digital Realty Trust, with a market cap of $71 billion, yields 2.59% and is up more than 23% in 2026. In July, it reported adjusted FFO above analyst estimates and raised full-year guidance.
Iron Mountain has a 2.96% dividend yield, has soared 42% this year and sports a $34.7 billion market cap. Second-quarter AFFO beat expectations and Iron Mountain raised full-year guidance.
Tailwind for REITs
The data center resistance could act as a tailwind for REITS, although the story is nuanced, said Wells Fargo Investment Institute analyst Amanda Martinez.
On one hand, the supply/demand factor favors the REITS because limiting new supply could raise the value of existing capacity, she said. If new capacity becomes harder to develop, those with sizable pipelines of development sites that are permitted with secured power will see a relative advantage, she added.
“On the other hand, permitting restrictions and moratoriums could weigh on future growth by slowing development timelines and pushing up costs,” Martinez said.
David Guarino, an analyst with real estate analytics firm Green Street, is bullish on Equinix and Digital Realty.
“Their size allows them to be nimble,” he said. “So if there is restriction or pushback in a certain market, they’ve got big land banks and big development pipelines, where they can pivot to other markets, and thus far, it has not slowed down their growth story in any way.”
Plus, their decades of experience means they have relationships with local municipalities, he said.
“They have an advantage given their track record, their ability to execute, where people want to do business with them,” he said. “That helps them to be able to maybe have an advantage over a newer entrant that might not have that skill set.”
Guarino prefers Equinix over Digital Realty, although both companies are doing “incredibly well.”
“As AI inference begins to accelerate — that’s more of the lower latency, real-life use cases from AI — that would start to benefit companies that are more focused on smaller tenant leasing, that are closer to where the population centers are,” he explained. “That’s a lot more of Equinix’s business than Digital Realty’s business.”
Alex Pettee, president and director of research and ETFs at Hoya Capital Real Estate, is also bullish on supply and demand for data center REITs. Both Equinix and Digital Realty are in Hoya’s model portfolios.
“Obviously, a moratorium can be bad if it stops one of your projects,” he said. “But zoom out, and if zoning gets tougher, power gets harder to secure, and communities don’t want new facilities, the data centers that are already there become more valuable.”
While the stocks aren’t cheap compared to other REITS, they look attractive compared to the rest of the AI trade, he said.
“You’re getting double-digit earnings growth, tangible real estate and infrastructure, recurring contractual revenue, and a roughly 2%-3% dividend yield,” Pettee said.
