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Data Center REIT ETFs: Overlooked Heroes of AI Boom
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In the heightened race toward AI innovation and implementation, huge money-making is already going on for those providing the tools needed in this digital gold rush. As AI applications continue to grow, their computational needs surge in tandem, creating an attractive market for those able to fulfill this demand. And this is where the need and demand for data center Real Estate Investment Trusts (REITs) lies.
Let's dive into a promising investing area that is set to benefit from the AI explosion.
Data Center REITs: Housing the AI Boom Led by Nvidia and AMD
The data-center leasing companies like Equinix (EQIX - Free Report) represent a different facet of the AI market - the physical housing of AI systems. As demand for cloud computing skyrockets, data-center landlords like Equinix find their properties in high demand. AI needs advanced GPUs and massive computational power for data training and inference, and data centers are key to fulfilling these needs.
Overall data center vacancy rates for primary markets declined to a record low of 2.8% in the first half of 2024, from 3.3% in the year prior, with nearly 80% of more than 3.87 gigawatts under construction in primary markets preleased, according to CBRE's H1 2024 North America Data Center Trends report released in August.
The Windfall for Data Centers
Data center companies stand to gain significantly from the increasing AI expenditure across various sectors. The AI boom is set to trigger top-line growth for these companies and improve their profit margins. While Equinix is a great company in the space, investors have pure-play exchange-traded funds (ETFs_ here – Global X Data Center & Digital Infrastructure ETF (DTCR - Free Report) and Pacer Data & Infrastructure Real Estate ETF (SRVR - Free Report) . Both ETFs are hovering around a 52-week high.
DTCR ETF in Focus
The underlying Solactive Data Center REITs & Digital Infrastructure Index seeks to provide exposure to companies that have business operations in the fields of data centers, cellular towers and digital infrastructure hardware. The ETF charges 50 bps in fees and yields 1.26% annually.
American Tower takes about 13.84%, followed by Equinix (12.4%), Digital Realty (11.80%) and Crown Castle (10.35%). Real Estate takes about 59.6% while IT makes up the next spot at 26.9%.
SRVR ETF in Focus
The underlying Solactive GPR Data & Infrastructure Real Estate Index composes of equity securities of developed markets companies that derive at least 85% of their earnings or revenues from real estate operations in the data and infrastructure real estate sector. The ETF charges 55 bps in fees and yields 3.57% annually.
American Tower takes about 16.30%, followed by Equinix (14.48%), Digital Realty (11.80%) and Digital Realty (13.95%).
Fed Rate Cut to Boost REITs?
The Fed is likely to cut rates in September. The move can have a positive impact on REITs for several reasons. REITs often rely on debt to finance their property acquisitions and development projects. A reduction in interest rates lowers the cost of borrowing, allowing REITs to access cheaper capital. Also, REITs are popular for their high dividend yields, especially in a low-interest-rate environment.
Bottom Line
The demand for data center REITs has increased in recent years, thanks to the rapid growth of cloud computing, artificial intelligence, and heavy reliance on digital infrastructure. Data center REITs, which own and manage facilities that house servers and networking equipment, are positioned to take advantage of the digital transformation. Plus, high probability of a Fed rate cut this month is a plus for the segment.
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Data Center REIT ETFs: Overlooked Heroes of AI Boom
In the heightened race toward AI innovation and implementation, huge money-making is already going on for those providing the tools needed in this digital gold rush. As AI applications continue to grow, their computational needs surge in tandem, creating an attractive market for those able to fulfill this demand. And this is where the need and demand for data center Real Estate Investment Trusts (REITs) lies.
Let's dive into a promising investing area that is set to benefit from the AI explosion.
Data Center REITs: Housing the AI Boom Led by Nvidia and AMD
The data-center leasing companies like Equinix (EQIX - Free Report) represent a different facet of the AI market - the physical housing of AI systems. As demand for cloud computing skyrockets, data-center landlords like Equinix find their properties in high demand. AI needs advanced GPUs and massive computational power for data training and inference, and data centers are key to fulfilling these needs.
Overall data center vacancy rates for primary markets declined to a record low of 2.8% in the first half of 2024, from 3.3% in the year prior, with nearly 80% of more than 3.87 gigawatts under construction in primary markets preleased, according to CBRE's H1 2024 North America Data Center Trends report released in August.
The Windfall for Data Centers
Data center companies stand to gain significantly from the increasing AI expenditure across various sectors. The AI boom is set to trigger top-line growth for these companies and improve their profit margins. While Equinix is a great company in the space, investors have pure-play exchange-traded funds (ETFs_ here – Global X Data Center & Digital Infrastructure ETF (DTCR - Free Report) and Pacer Data & Infrastructure Real Estate ETF (SRVR - Free Report) . Both ETFs are hovering around a 52-week high.
DTCR ETF in Focus
The underlying Solactive Data Center REITs & Digital Infrastructure Index seeks to provide exposure to companies that have business operations in the fields of data centers, cellular towers and digital infrastructure hardware. The ETF charges 50 bps in fees and yields 1.26% annually.
American Tower takes about 13.84%, followed by Equinix (12.4%), Digital Realty (11.80%) and Crown Castle (10.35%). Real Estate takes about 59.6% while IT makes up the next spot at 26.9%.
SRVR ETF in Focus
The underlying Solactive GPR Data & Infrastructure Real Estate Index composes of equity securities of developed markets companies that derive at least 85% of their earnings or revenues from real estate operations in the data and infrastructure real estate sector. The ETF charges 55 bps in fees and yields 3.57% annually.
American Tower takes about 16.30%, followed by Equinix (14.48%), Digital Realty (11.80%) and Digital Realty (13.95%).
Fed Rate Cut to Boost REITs?
The Fed is likely to cut rates in September. The move can have a positive impact on REITs for several reasons. REITs often rely on debt to finance their property acquisitions and development projects. A reduction in interest rates lowers the cost of borrowing, allowing REITs to access cheaper capital. Also, REITs are popular for their high dividend yields, especially in a low-interest-rate environment.
Bottom Line
The demand for data center REITs has increased in recent years, thanks to the rapid growth of cloud computing, artificial intelligence, and heavy reliance on digital infrastructure. Data center REITs, which own and manage facilities that house servers and networking equipment, are positioned to take advantage of the digital transformation. Plus, high probability of a Fed rate cut this month is a plus for the segment.