As the demand for data centers continues to surge, driven by the massive computing needs of artificial intelligence and cryptocurrency, as well as by large tenants such as cloud service providers and social media companies, the need for more data center capacity becomes imperative. According to Moody’s Ratings, data center capacity will need to more than double by 2028 in order to meet the unconstrained forecast for power consumed by data centers.
Digital Realty Trust and Equinix, two diversified data center landlords, are well positioned to benefit from this surge in demand. Both companies are investing in projects across the globe to meet the growing need for data center capacity. While Digital Realty Trust has seen a 9% increase year to date and boasts a 3.32% dividend yield, Equinix has faced challenges, losing nearly 4% so far this year with a 2.19% dividend yield.
Despite facing scrutiny from short seller Hindenburg Research in March, Equinix maintains that its financial reporting is accurate. The company’s management was accused of manipulating a key profitability metric, but an independent investigation concluded otherwise. Both Digital Realty Trust and Equinix have increased their use of joint venture arrangements and preleasing of capacity under construction to maintain their current credit ratios and strong liquidity.
While rapid technological innovations pose significant obsolescence risks over time, Moody’s believes that Digital Realty Trust and Equinix are better equipped than most of their peers to respond to the changing environment. The diverse portfolios and property pipelines of both companies should continue to attract data center tenants, with a total of about 71 million square feet of data center space between them.
Digital Realty Trust generates 59% of its revenue base in the Americas, 31% from Europe, the Middle East and Africa (EMEA), and the rest from the Asia-Pacific (APAC) region. On the other hand, Equinix receives 44% of its revenue from the Americas, 34% from EMEA, and 22% from APAC. Both companies have long-standing relationships with hyperscalers and diverse tenant rosters, positioning them well to attract business from large hyperscaler clients expanding into new markets.
Countries with data privacy and sovereignty rules will require data to be processed and stored within their borders, rather than in one remote centralized location. This presents an opportunity for data center operators like Digital Realty Trust and Equinix, with their proven global track record and strong presence in key regions. As the demand for data centers continues to grow, these two REITs are poised for growth and success in the evolving landscape of technology and digital infrastructure.