Data centers are an essential piece of global digital infrastructure. They're a nerve center for data storage, cloud computing, and internet connectivity, and the demand for their services and storage capacity has grown dramatically in recent years.
So has their value. There used to be several publicly traded real estate investment trusts (REITs) that owned and operated data centers, but that number has shrunk after three were bought in the past year: QTS, CyrusOne and CoreSite.
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The two largest pure-play data center REITs are Equinix (EQIX -0.91%) and Digital Realty (DLR 0.95%). Equinix is by far the larger of the two, with more than 220 data centers in more than 60 markets on five continents and a client list headlined by the likes of Google Cloud, Azure, AWS, and Oracle.
Both have outstanding long-term shareholder performance. Let's look at Equinix right now. As the chart below shows, Equinix stock has provided a total return of nearly double that of the S&P 500 over the past 10 years. But what about now and going forward?
EQIX Total Return Level data by YCharts.
Equinix stock has taken a beating since the year began, falling to about $675 a share in February after the company reported net income per share of $1.36 for the fourth quarter, well off analysts' consensus estimates of $5.63. Of course, the overall market took a swoon at the same time, but as the chart below shows, Equinix still remains below the S&P 500 -- for now.
EQIX Total Return Level data by YCharts.
Profits to take now, investing for more to come
That sell-off may have been profit-taking after a 2021 run-up of about 20% or was simply ill-timed. After growing adjusted funds from operations (AFFO), a key measure of REIT profitability, by 12% in 2021, Equinix is guiding another increase of 8% to 9% this year. It predicts the same with revenue, following up an 11% increase last year with an expected 9% increase this year.
No time like the present
Equinix presents solid evidence for a verdict of "buy" for a stock that's currently trading for about $719 a share and yielding about 1.72% after recently raising its dividend by 8% to $3.10 a share, its sixth-straight annual boost.
The company has just posted its 76th consecutive quarter of revenue growth and looks likely to continue that streak. For instance, it saw record indirect channel bookings in Q4 2021 and, as significantly, is continuing to build capacity. At year's end, there were 41 major projects underway in 19 countries.
There's more. Equinix just announced on March 21 that it planned to buy three data centers in Chile and one in Peru for $705 million. That's on top of a joint venture for $575 million with a partner in Australia and another for $525 million with a partner in South Korea. It also expects to close soon on its acquisition of MainOne, a data center operator in Nigeria, Ghana, and Côte d'Ivoire.
If that African expansion strategy sounds familiar, it might be because rival Digital Realty recently acquired its own operation on that continent, where digital infrastructure growth is fast and promising.
My portfolio is heavily REITs, and when I decided to add a data center company to the mix a year or so ago, I chose Digital Realty. I have nothing against Equinix at all. The big difference at that moment was the share price. Equinix shares were trading at about $720 at that point, Digital Realty for about $140. All things being equal, I just decided to own more shares of something. Owning Equinix would have worked out perfectly fine, too, and I wouldn't hesitate to buy it now and likely add more going forward.
