The artificial intelligence (AI) market grew rapidly over the past few years as new generative AI platforms, such as OpenAI's ChatGPT, gained hundreds of millions of mainstream users. That trend forced more companies to ramp up their AI investments, which in turn drove data center operators to expand their infrastructure to handle the latest AI applications.
Fortune Business Insights expects the global AI infrastructure market to expand at a CAGR of 29.1% from 2025 to 2032. According to LandGate, the American energy infrastructure sector could require at least $1.4 trillion in investments to keep pace with that power-hungry market.
Image source: Getty Images.
There are plenty of ways to profit from that secular expansion. Still, the simplest way is to invest in Nvidia (NVDA +1.60%), the world's top AI chipmaker, and data center real estate investment trusts (REITs) such as Equinix (EQIX 0.19%) and Digital Realty (DLR +0.28%).
Why should you stick with Nvidia?
Nvidia's discrete GPUs can process parallel tasks simultaneously, making them better suited for AI applications than CPUs, which are usually designed to execute sequential tasks. Nvidia once generated most of its revenue from gaming GPUs for PCs, but its high-end data center GPUs now account for most of its top line.
NASDAQ: NVDA
Key Data Points
To expand their AI infrastructure, those data center operators need to buy many Nvidia high-end data center GPUs. Nvidia also locks in its customers with CUDA (Compute Unified Device Architecture), a proprietary programming platform optimized for its own chips. Those apps usually need to be rewritten to run on other GPUs.
Nvidia's first-mover advantage in the data center GPU market, along with the stickiness of its ecosystem, enabled it to conquer more than 90% of the discrete GPU market. It faces some competition from AMD's cheaper data center CPUs and Broadcom's custom AI accelerators. Still, there could be plenty of room for all of those chipmakers to thrive in the expanding AI market without treading on each other. In other words, Nvidia should keep selling the best picks and shovels for the AI gold rush.
From fiscal 2025 (which ended last January) to fiscal 2028, analysts expect Nvidia's revenue and earnings per share (EPS) to grow at a CAGR of 47% and 45%, respectively. Those are jaw-dropping growth rates for a stock that trades at 26 times next year's earnings, and it should continue rising as more companies ramp up their AI infrastructure spending.
Why should you invest in data center REITs?
Equity REITs are companies that buy many properties, rent them out, and share rental income with their investors. They're also obligated to pay out at least 90% of their taxable income as dividends to maintain a lower tax rate.
Therefore, income-oriented REIT investors seeking exposure to the AI market should consider two of the world's largest data center REITs: Equinix and Digital Realty. Equinix operates more than 270 data centers, while Digital Realty runs over 300 data centers.
NASDAQ: EQIX
Key Data Points
Both companies rent out their data centers to cloud and AI companies, and they return most of that income to their investors. Equinix splits its data centers into smaller units, which allows it to serve a broader range of industries and smaller businesses. Digital Realty usually leases larger blocks of space to big enterprises and cloud infrastructure customers.
Both companies also provide interconnection services that allow their customers to connect directly at high speeds. However, Equinix's interconnection services are generally denser and support more direct connections than Digital Realty's services.
NYSE: DLR
Key Data Points
Equinix and Digital Realty both struggled in 2022 and 2023 as rising interest rates made it more expensive to acquire or lease more data centers. However, as interest rates decline and the AI market continues to expand, both stocks should become compelling investments again.
Equinix still looks reasonably valued at 21 times its projected adjusted funds from operations (AFFO) per share for 2025. It also pays a forward yield of 2.4%. Digital Realty, which trades at 21 times its expected 2025 core FFO per share, has a forward yield of 3.1%. Therefore, if you're looking for a reliable way to generate some passive income while profiting from the expansion of the AI market, these two data center REITs check all the right boxes.
