The Silicon & Stone Age: Data Centers & The AI Boom

by

Most investors, when contemplating the burgeoning field of Artificial Intelligence, envision shimmering towers of silicon and the wizards who coax them to life – the Nvidias and Microsofts of this new age. And rightly so. These are, after all, the visible face of the revolution, the gilded carriages rolling through the digital kingdom. But kingdoms, as any historian will tell you, are built on foundations. And those foundations, increasingly, are made of… well, rather large sheds.

The trouble with headline-grabbing AI stocks is that they’ve already had their magic spells cast upon them, inflating their value to levels that would make even the most ambitious alchemist blush. We’re looking, therefore, at the supporting cast, the unsung heroes quietly building the infrastructure that makes the whole spectacle possible. Think of them as the dwarves, diligently mining the raw materials while everyone else admires the elven craftsmanship.

Consider, if you will, the pronouncements from on high: Nvidia predicting a trillion dollars in chip sales by 2027, Amazon splashing out two hundred billion on… things.1 Where, precisely, do these chips live? Where does all this money actually go? The answer, surprisingly unglamorous, is data centers. These aren’t the sleek, futuristic visions of science fiction, mind you. They’re more akin to industrial estates, vast warehouses humming with the collective breath of a thousand servers. And three companies, in particular, are positioning themselves as the landlords of this digital frontier.

Three Keepers of the Digital Flame

First, we have Equinix. A name that sounds suspiciously like a stable of particularly temperamental horses, but in reality, they operate the largest portfolio of data centers on the planet. Over 260 of them, scattered across 36 countries, housing more than half a million ‘interconnections.’2 They’re the gold standard, the established nobility of the data center world, and they know it. Their data centers aren’t merely buildings; they’re digital fortresses, meticulously guarded against power outages, overheating, and, one suspects, rogue algorithms.

Then there’s Digital Realty Trust. They’re similar in size to Equinix, but with a slightly different business model. Think of Equinix as a bustling marketplace, renting out individual stalls, while Digital Realty is more of a wholesaler, providing large-scale deployments for the mega-corporations. In fact, Equinix is one of Digital Realty’s largest tenants, leasing space and subleasing it to others – a delightful bit of corporate symbiosis, or perhaps a subtle power play, depending on your perspective.3

Finally, we have Prologis. Now, Prologis is a bit of an outlier. They’re not a ‘pure-play’ data center REIT; they’re the world’s largest owner of logistics space – warehouses, distribution centers, the arteries of global commerce. But over the past few years, they’ve been quietly pivoting towards data centers, leveraging their vast land holdings and financial muscle. It’s a bit like a blacksmith deciding to take up alchemy – a surprising move, but potentially very lucrative. They have the land, the resources, and, crucially, the ability to build these digital fortresses at scale.

Strong Results, and a Reasonable Price

Equinix recently reported record annualized gross bookings, fueled by the insatiable demand for AI infrastructure. Their stock, predictably, soared. Digital Realty Trust followed suit, with core FFO up 10% year-over-year and a backlog that stretches into the digital horizon. And Prologis, despite being a relative newcomer to the data center game, reported its best-ever quarter for lease signings, suggesting that their foray into the digital realm is paying off. The signs, as they say, are auspicious.

All three stocks look attractive, though not cheap. Equinix trades at around 24 times FFO, with a modest 2% dividend yield. Digital Realty Trust offers a slightly higher yield of 2.8%, and has been consistently increasing its dividend for two decades. And Prologis, at 21 times expected FFO, boasts the highest yield of the three, at 3.2%, with significant potential for embedded rent growth.4

With hundreds of billions of dollars in data center investment expected in the coming years, and even more beyond, one of these stocks could be a shrewd way to gain exposure to the AI boom at a reasonable entry point. It’s not about chasing the shimmering towers of silicon, but about investing in the foundations that support them. After all, even the most magnificent castle needs a solid base.

  1. 1 The precise nature of these “things” remains, as is often the case with large corporations, shrouded in a delightful mist of accounting jargon.
  2. 2 “Interconnections” – a wonderfully vague term that sounds suspiciously like a secret society of servers.
  3. 3 One suspects there’s a complex web of cross-ownership and strategic alliances at play, but unraveling it would require a team of investigative accountants and a very strong cup of tea.
  4. 4 Dividend yields, of course, are subject to the whims of the market and the occasional bout of economic instability. Invest responsibly, and don’t blame us if your portfolio suddenly develops a personality of its own.

Read More

2026-03-21 13:42