Life is good for data centers…. just ignore the stock prices
Thanks to stock prices, investors are now workin’ on the weekend, unlike usual. Tech stocks are having their worst start to the year since 2000, but fundamentals in data centers are still looking strong despite the drop.
Companies create ~2 million terabytes of data daily…
… and all that data needs to be stored and processed somewhere. Enter data centers — facilities that house servers and store data.
- Cloud computing has driven a surge in data center demand — powered by the two largest cloud computing services, Amazon Web Services and Microsoft Azure.
- In 2022, Google increased its office and data center investments to $9.5B — up from $7B last year.
Organizations can host their own data centers on-premises — or they can use data centers off-premises. One commonly used off-premise model is colocation data centers — which rent out server spaces to other companies.
Cloud computing and data usage growth has led to a surge in data center real estate demand. In 2021, data center inventory increased by 17% — but demand remained strong, with over 44% of data centers under construction already pre-leased.
There’s been a growing trend in recent years…
…Mergers, acquisitions and big investments. 95% of institutional investors plan on investing more in data centers this year — viewing the sector with “extremely positive fundamentals,” per CBRE (Data Center Frontier).
This has led to major acquisitions of smaller data center operators and REITs:
- American Tower (NASDAQ:AMT) — a REIT that focuses on wireless infrastructure — acquired data center REIT, CoreSite, last year for $10B.
- DigitalBridge (NYSE:DBRG) — a digital infrastructure investment firm — acquired data center operator Switch last week for $11B.
After struggling for many years, DigitalBridge brought in a new CEO, Marc Ganzi, in 2020. The company rebranded from Colony and shifted its focus towards digital infrastructure – selling off many of its non-digital legacy properties.
Don’t expect the M&A’s to stop there. In April, Bloomberg reported that Cyxtera (NASDAQ:CYXT), a smaller data center operator, is exploring a potential sale — just two years after going public.
Investors: Center of growth
Advanced data center chips are one of the fastest-growing segments for chipmakers AMD and Nvidia. Data centers have fueled the growth of Micron (NASDAQ:MU), the largest memory chipmaker in the U.S.
Another way to invest is through REITs or data center operators:
- Equinix (NASDAQ:EQIX) — down 24% in 2022 — is the world’s largest data center colocation provider.
- Digital Realty Trust (NYSE:DLR) – down 29% in 2022 – is another data center REIT that provides colocation services.
According to Ganzi, “this is really the golden era of all things digital infrastructure.” All we need now is stock prices to reflect that sentiment.