Surging AI data center demand will benefit these dividend-paying real estate stocks, says Moody’s

As data center demand continues to surge, two real estate investment trusts are well positioned to benefit, according to Moody’s Ratings. The demand is being driven by the massive computing needs of artificial intelligence and cryptocurrency, as well as by large tenants like cloud service providers and social media companies, Moody’s senior credit officer Ranjini Venkatesan said in a note last week. “Despite rapid growth in data center capacity in recent years, it has been unable to keep pace with surging demand,” she wrote. “We forecast that data center capacity will need to more than double by 2028 to meet our unconstrained forecast for power consumed by data centers.” Digital Realty Trust and Equinix , diversified data center landlords, are investing in projects across the globe to meet this demand, Venkatesan said. Digital Realty Trust is up more than 9% year to date and has a 3.32% dividend yield. However, Equinix, which became a target of short seller Hindenberg Research in March, has lost nearly 4% so far this year. It yields 2.19%. Hindenburg accused the company’s management of manipulating a key profitability metric. However, Equinix said in May that an independent investigation concluded its financial reporting has been accurate. EQIX 1Y mountain Equinix’s one-year performance “These landlords’ increased use of joint venture arrangements, preleasing of capacity under construction, and good returns on the new investments will help maintain their current credit ratios and strong liquidity,” Venkatesan wrote. “Although rapid technological innovations will pose significant obsolescence risks over time, the two REITS are better equipped than most of their peers to respond to the changing environment,” she added. She believes the property pipelines and diverse portfolios of both Digital Realty Trust and Equinix should attract data center tenants. The two REITs own a total of about 71 million square feet of data center space, she said. DLR 1Y mountain Digital Realty Trust’s one-year performance Some 59% of Digital Realty’s revenue base is generated in the Americas and 31% from Europe, the Middle East and Africa (EMEA), and the remaining from the Asia-Pacific (APAC) region, Venkatesan noted. Meanwhile, Equinix gets 44% of its revenue from its Americas properties, 34% from EMEA and 22% from APAC, she said. Both names have long-standing relationships with hyperscalers and diverse tenant rosters, she pointed out. She also sees the REITs winning business from large hyerscaler clients that are expanding in new markets since they both have long and proven global track records. “In particular, countries with data privacy and sovereignty rules will require data to be processed and stored within their borders rather than one remote centralized location,” Venkatesan said. “Therefore, hyperscalers will maintain data center capacity in more locations than in the past.”