There's no denying it -- artificial intelligence (AI) is the most transformative technological revolution in recent times. And it's likely that investing in AI will be a major creator of wealth for many people.
However, there are other ways to invest in AI besides the chipmakers, software developers, and generative AI companies. One that many investors overlook is data centers, which provide the infrastructure that makes AI possible. Equinix (EQIX +0.21%) is the largest data center owner in the market, and its stock is worth a closer look right now -- especially considering some of the high valuations in other types of AI stocks.
Image source: Getty Images.
Equinix in a nutshell
Equinix is a real estate investment trust, or REIT, a specialized type of company designed to hold commercial real estate assets -- in this case, data centers.
If you aren't familiar, think of data centers as the physical "homes" of the internet, and for generative AI in particular. When you ask ChatGPT or another generative AI application a question, the hardware that processes the response needs to physically live somewhere. That's where data centers come in. They provide a secure, reliable environment for servers, networking equipment, and other essential components of cloud computing.
Equinix has 273 data centers in its portfolio, with space leased by over 10,000 customers, including Nvidia, Adobe, and many others. More than 60% of Fortune 500 companies are Equinix customers to some extent.
Massive potential in the AI boom
The short explanation is that data center demand has soared in recent years, and most experts believe the AI investment boom will keep demand growing for years to come. In fact, global AI data center spending was $236 billion last year, and several estimates call for the annual spending to exceed $1 trillion by 2030 -- more than four times the current level.
NASDAQ: EQIX
Key Data Points
In the most recent quarter, Equinix's results show the demand growth. Bookings (which indicate future revenue) grew 25% to an all-time high. With an excellent balance sheet, nearly 60 major data center projects already underway, and about $7 billion in liquidity, Equinix is well positioned to capitalize on opportunities as they arise.
A reasonable price to pay
Equinix trades for about 20 times funds from operations, or FFO, which is the best way to measure "earnings" for real estate stocks. This is a reasonable price, considering the massive opportunity, and it makes Equinix an excellent way to get exposure to AI if you're concerned with some of the AI stock valuations you've been seeing.
