Data Center REITs: Finding AI Infrastructure Investment at a Proper Fraction of the Price

The race to capitalize on artificial intelligence has created a crowded landscape of investment options. Chipmakers and software companies dominate headlines, with valuations that often stretch credibility. Yet there’s a critical layer of the AI ecosystem that most investors overlook: the physical infrastructure that makes AI possible. Data centers – and specifically, real estate investment trusts that own them – offer exposure to the AI boom at a proper fraction of the valuation multiples you’ll find elsewhere in the sector.

Equinix (NASDAQ: EQIX), the world’s largest data center operator, represents exactly this kind of opportunity. While AI stocks trade at premium prices, Equinix’s infrastructure business trades at roughly 20 times funds from operations (FFO) – a reasonable price when measured against its growth trajectory and market opportunity.

The Overlooked Foundation: Why Data Center Operators Matter for AI

When you interact with ChatGPT or any generative AI application, something physical has to handle that computation. Servers need to exist somewhere, networking equipment needs to be housed, cooling systems must run constantly, and security protocols must be maintained. This unglamorous but essential work happens in data centers – the digital “real estate” that powers the internet and, increasingly, the artificial intelligence economy.

Unlike software companies or chip designers, data center operators like Equinix aren’t in the business of innovation. They’re in the business of providing the secure, reliable environments where innovation actually runs. For investors concerned about the speculative nature of many AI stocks, this distinction matters significantly. Data centers generate stable, contractual revenue from thousands of customers who depend on them to operate 24/7. Equinix, for instance, serves over 10,000 customers across 273 facilities worldwide, with more than 60% of Fortune 500 companies relying on Equinix infrastructure to some degree.

Equinix’s Commanding Market Position

What makes Equinix particularly compelling is the structural advantage it has built over decades. With 273 data centers globally, the company has created a network effect that competitors struggle to replicate. The company’s scale is reinforced by its customer base, which includes household names like Nvidia and Adobe.

The most recent quarter demonstrated the strength of underlying demand. Bookings – a forward-looking metric that indicates future revenue – grew 25% to reach an all-time high. This isn’t speculation; it’s concrete evidence that enterprises are committing capital to expand their data center footprints. With $7 billion in liquidity on its balance sheet and nearly 60 major projects already underway, Equinix has the financial firepower to capitalize on opportunities as they emerge.

The AI Data Center Boom: Quantifying the Opportunity

The tailwinds behind data center demand are substantial. Global spending on AI data center infrastructure reached $236 billion last year. Industry analysts project this figure could exceed $1 trillion annually by 2030 – more than quadrupling from current levels. This isn’t a niche market; it’s a transformative shift in how computing resources are allocated.

This explosive growth creates a favorable environment for operators like Equinix. Every large enterprise that wants to build or expand AI capabilities needs data center capacity. Cloud providers need it. AI research organizations need it. The demand curve points sharply upward, and Equinix is already positioned as the go-to partner for organizations that can’t afford downtime or service degradation.

Why a Proper Fraction of the Valuation Premium Makes Sense

The contrast between Equinix’s valuation and that of AI-focused tech stocks is striking. Many software and hardware companies trading on AI themes command 30x, 40x, or even higher earnings multiples. Equinix trades at 20x FFO – a proper fraction of these multiples – despite having more predictable revenue streams, lower growth volatility, and a more diversified customer base.

This valuation gap doesn’t reflect weakness in the business; it reflects the market’s tendency to price glamorous innovation at a premium. Equinix’s business is less glamorous but more reliable. The company generates recurring, contractual revenue from customers who have no choice but to pay for the space they’re renting. This creates a more defensible business model than most pure-play AI software companies, where customer retention is far less certain.

The Investment Case in Context

For investors worried about the frothy valuations in many AI stocks, Equinix presents a concrete alternative. The company provides genuine exposure to the AI investment boom without the speculative premium that software and hardware companies command. The business fundamentals are strong – demand is accelerating, the balance sheet is solid, and major growth projects are underway.

At a proper fraction of the price-to-earnings multiples of comparable AI-related stocks, Equinix offers investors a way to participate in the infrastructure layer of the artificial intelligence revolution. That doesn’t make it a guaranteed winner, but it does make it worth serious consideration for any portfolio looking to gain exposure to AI infrastructure without chasing the most expensive segments of the market.