Data center stocks slide in AI selloff; REITs look to cushion the blow

what happened

Companies that lease space to hyperscalers such as Meta, Amazon, Alphabet and Google fell on Thursday along with the broader AI trade. Equinix and Digital Realty Trust shares each dropped roughly 4%, while Meta was down about 7% by late afternoon. The sell-off was triggered by Meta's regulatory filing, in which the company said it had committed more than $355 billion to data centers, energy infrastructure, colocation and certain network equipment, up from $279 billion it planned in July.

These REITs earn their revenue from leasing and operating data center space, including the buildings, power and networking. Equinix shares have gained nearly 30% this year through the prior day's close, against 14% for Digital Realty. The gap reflects customer mix: a large share of Digital Realty's revenue comes from hyperscalers, which push hard for the lowest prices, while Equinix serves more than 10,000 mostly smaller customers that pay higher rates.

why it matters

According to Barron's, Guggenheim analysts wrote on Wednesday that demand for Equinix remains strong and that its more diverse customer base justifies a premium to peers. The firm rates the stock a buy with a $1,235 price target. Reducing reliance on a few large clients matters for these REITs: Guggenheim noted that Digital Realty's growth in contracts for up to 1 megawatt is high margin and less exposed to hyperscaler demand swings.

market impact

Data center REITs: AI selloff pressures shares, while a diversified customer base cushions the hit

tags

instruments