Data Center Investing In USA
Data center investing is now a critical investment opportunity for both retail investors as well institutional investors as they form the backbone of modern digital infrastructure. Institutional investors or HNIs can directly invest in data center construction, operation, or data center-supported companies. Retail investors can participate in the stock market to be a part of this next-best investment opportunity globally.
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The data center investment in the US is expected to reach 24GMW by 2029 from 15 GW in 2024 at a CAGR of 10.24%. This growth of data center investments is mainly driven by the consumption of digital data, the expansion of cloud computing, streaming services (OTT), and artificial intelligence (AI), etc.
In the U.S., data center companies are thriving, offering strong potential for returns through data center stocks and real estate investment trusts (REITs) that cater to the sector. Let us explore the dynamics of data center investment, and identify the most attractive investment opportunities within the U.S. market.
Data Center Investing in USA
The U.S. data center market is the largest in the world, driven by the country’s high demand for digital infrastructure, cloud services, and technology adoption across industries. As of 2024, the U.S. colocation data center revenue is estimated to be USD 38 billion and is projected to reach USD 95 billion by 2029, growing at a CAGR of 20.5% during the forecast period (2024-2029). In terms of data center investment, the U.S. data center market witnessed investments of USD 101.59 billion in 2023 and is expected to reach USD 148.52 billion by 2029.
Key Market Drivers:
- Cloud Computing: The rise of public cloud platforms such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud has boosted the need for large-scale data centers across the U.S. Cloud providers are the largest tenants of data centers, and their demand continues to grow as more enterprises adopt cloud-first strategies.
- Hyperscale Data Centers: Hyperscale data centers are massive facilities that support cloud service providers, AI applications, and large-scale enterprises. The U.S. is home to the largest concentration of hyperscale data centers globally. These data centers can house thousands of servers and offer scalable solutions for high-performance computing. The number of hyperscale data centers in the U.S. is expected to reach over 700 by 2025, making it a dominant player in the global market.
- Colocation Services: Many companies are opting for colocation services where they lease space in a third-party data center rather than building their own. This trend is driven by the cost advantages, flexibility, and operational efficiency that colocation offers. Major U.S. cities like New York, San Francisco, Chicago, and Dallas are hubs for colocation data centers due to their dense business ecosystems.
- Edge Computing and 5G: The U.S. is also a leader in the edge computing space, thanks to its early adoption of 5G networks. Edge data centers, which process data closer to the source, are set to proliferate as applications like autonomous vehicles, smart cities, and IoT expand. These micro-data centers will support the growing demand for low-latency, high-speed services across the country.
Major Data Center Stocks in the U.S. to Invest
The U.S. has some of the world’s largest data center companies and many of them are publicly traded companies. These companies offer various options to investors to tap into the growth of the data center industry. Let us examine a few companies in the U.S. data center investment space.
- Equinix (EQIX)
Equinix is one of the largest data center providers globally. The company operates a vast network of interconnected data centers globally. It provides co-location and interconnection services, allowing enterprises to deploy their data infrastructure in strategic locations.
Equinix has a substantial presence in the U.S. market and continues to expand aggressively. Equinix operated 108 IBX data centers in the Americas region as of December 31, 2023. As of Q2 2024, Equinix had 110 data centers across 29 U.S. metros. This suggests an increase in U.S. data centers since the end of 2023.
The company has a strong expansion plan in various U.S. cities, including Dallas, Washington D.C., New York, Miami, and others. Equinix is planning to add 1,750 sellable IBX cabinets in Q2 2024, 1,200 in Q3 2024, and 2,775 in Q1 2025. This data reveals the scale of their planned capacity expansion in the Americas, likely including a substantial portion in the U.S.
For example, MX2 phase III in Mexico City is scheduled to open in Q2 2024 with 1,200 sellable cabinets, and NY11 phase IV in New York is also set to open in Q2 2024 with 550 sellable cabinets.
The focus on xScale data centers indicates Equinix’s strategy to cater to the growing demand from hyperscale cloud providers, a trend that will likely drive significant capacity expansion in the U.S.
To reduce the length of the article, I am not sharing the complete expansion plan for other data center companies in USA. We can discuss them on demand.
- Digital Realty Trust (DLR)
Digital Realty Trust is another leading data center REIT that owns and operates more than 280 data centers across North America, Europe, and Asia. The company serves a wide range of industries, including technology, finance, and healthcare. Its focus on strategic acquisitions and partnerships, combined with its emphasis on sustainability, positions Digital Realty Trust as a strong contender in the data center investment space.
- CoreSite Realty (COR)
CoreSite Realty focuses on providing data center solutions for enterprises that require high-performance connectivity. The company’s data centers are strategically located in major U.S. cities such as New York, Los Angeles, and Chicago. CoreSite has seen strong demand from cloud service providers and financial institutions, making it an attractive option for investors looking for high-growth data center stocks.
- CyrusOne (CONE)
CyrusOne is another major player in the data center industry, with a focus on providing mission-critical infrastructure for cloud providers and large enterprises. The company has been expanding its presence in North America and Europe, and its strategic investments in high-performance data centers have positioned it well to capture future growth. CyrusOne offers investors exposure to both traditional and edge data centers.
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Data Center Investment Funds: Another way of data center investing
Apart from investing directly in Equities of data center companies, one can invest in Data Center REITs, mutual funds, exchange-traded funds (ETFs), and private equity funds related to data center investment, each catering to different investor needs and risk profiles.
Investing in Data Center REITs An Ideal Data Center Investment
Data center real estate investment trusts (REITs) offer a unique investment vehicle for gaining exposure to the data center sector. REITs are publicly traded companies that own, operate, or finance income-producing real estate. Data center REITs are particularly appealing because they provide the benefits of real estate investing while capitalizing on the long-term growth prospects of the digital economy.
Investors in data center REITs can benefit from steady rental income, as these facilities typically lease space to large, creditworthy tenants on long-term contracts. Additionally, data center REITs often have high barriers to entry due to the substantial capital required to build and operate data centers, creating a competitive advantage for established players.
Some of the top data center REITs in the U.S. include:
- Equinix (EQIX)
- Digital Realty Trust (DLR)
- CyrusOne (CONE)
- QTS Realty Trust (acquired by Blackstone in 2021 but remains a notable mention)
Data Center ETFs: Best in Data Center Investments
Exchange-traded funds (ETFs) that focus on data center investments are increasingly popular among investors. These ETFs often hold a mix of data center stocks, cloud service providers, and technology companies that are integral to the digital economy. Some notable data center ETFs available to U.S. investors include:
- Pacer Benchmark Data & Infrastructure Real Estate ETF (SRVR): This ETF primarily invests in data center REITs and infrastructure companies that support data centers and telecom towers. Major holdings include Equinix, Digital Realty Trust, and American Tower.
- Global X Data Center REITs & Digital Infrastructure ETF (VPN): Another popular choice, the VPN ETF, focuses on companies involved in data centers, fiber optic cables, and other digital infrastructure components. The fund offers a mix of domestic and international exposure, giving investors access to global data center companies.
Private Equity Data Center Investment Fund
Private equity firms have also recognized the value of data centers as essential assets in the digital age. Some private equity data center investment fund are specifically focused on acquiring and developing data centers, aiming to capture the growth of cloud computing, AI, and 5G technologies.
For example, Blue Owl Capital and Partners Group are leading nearly $7 billion in new investments in U.S. data centers. The firms are partnering with data center operators Chirisa Technology Parks and PowerHouse Data Centers to develop large-scale data centers for AI cloud firm CoreWeave.
Stonepeak Infrastructure Partners, a leading private equity firm, has raised billions of dollars to invest in digital infrastructure, including data centers and fiber networks. Stonepeak and American Tower’s CoreSite have formed a joint venture to construct a new data center in Denver, Colorado. Stonepeak is expected to hold an 85 percent stake in the joint venture.
Future Outlook for Data Center Investment in the U.S.
The future of data center investment in the U.S. remains bright. The continued growth of the digital economy, driven by cloud computing, AI, 5G, and IoT, will keep on boosting the demand for data centers. Furthermore, the expansion of edge computing and the shift toward sustainability will open new investment avenues within the sector.
Investors can keep an eye on the undervalued data center stocks in USA to invest in at the right time. However, investors should remain cautious of overvaluation and consider long-term trends when selecting the best data center companies for long-term data center investments.
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