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5 Real Estate Investments to Profit from Cloud Computing


Jul 24, 2020 by Kevin Vandenboss

Cloud computing is no longer a thing of the future. It's how a lot of business is currently done. The number of businesses and people taking advantage of cloud solutions is growing with the daily advances in technology and solutions that are offered.

A lot of companies are profiting from this growing industry, and I'm sure a few major technology companies quickly come to mind. However, despite its name, the cloud actually requires a lot of real estate to house the millions of servers that make cloud computing possible. Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), CyrusOne (NASDAQ: CONE), QTS Data Centers (NYSE: QTS), and CoreSite Realty (NYSE: COR) are five data center real estate investment trusts (REITs) making real estate investments to profit from cloud computing.

Equinix

Equinix is the biggest of the data REITs, which is why they're able to handle 50% of Fortune 500 companies including the major cloud computing companies like Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), AT&T (NYSE: T), and Oracle (NYSE: ORCL). To handle all of this, Equinix has 211 data centers across five continents.

Apparently, that many data centers don't meet the demand since they have 32 new expansion projects underway. That may be one reason they're up over 22% YTD despite the COVID-19 crash.

Digital Realty

This is another REIT that's a major player in the cloud computing space. Also a data center REIT, Digital Realty has over 4,000 customers utilizing 275 data centers across six continents.

Digital Realty is getting the most out of their data center network with their advanced technology in the cloud computing space. Their PlatformDIGITAL is providing global companies with fast, reliable, and secure access to their data from any point in the world. This is also a great solution for mobile services and applications as well as online games being played by several users simultaneously across the globe.

CyrusOne

As the third largest data center provider in the U.S., CyrusOne services 200 Fortune 1000 companies with its 45+ data centers on three continents.

CyrusOne's winning edge is in their fast construction of build-to-suit data centers. Their Massively Modular system allows them to complete a new data center in just 12 to 16 weeks. This gives them a huge advantage for customers with major data needs that require their own facility without the time to wait.

QTS Realty Trust

While being one of the smaller data center REITs with only 24 data centers in the U.S. and two megacenters in the Netherlands, QTS provides some of the most innovative solutions of any data center provider.

QTS Data Centers connects directly to cloud services such as AWS, Google Cloud, and Azure for fast, seamless integration. Customers can access all of these cloud services from a single port through WTS.

They also utilize AI to automate data provisioning across data centers, cloud service providers, and carrier hotels for speed, reliability, and cost savings.

CoreSite Realty Corporation

CoreSite is another small but mighty data center REIT. They only have 23 data centers across eight U.S. markets, but they utilize them well.

Similar to QTS, CoreSite has an open cloud system with a virtual connection directly to the major cloud service providers. The main difference in this service between the two is their data speed options, with CoreSite offering the wider range.

Customers would most likely decide between CoreSite and QTS based on their location and which one would have the closest data center to them.

Are data center REITs a good way to invest in cloud computing?

It's very unlikely that businesses will transition back to housing their own data. With the technologies that cloud companies are providing now, more and more data and services will be moving into data centers like the ones owned by these REITs.

When choosing a data center REIT to invest in, you should look at the company's ability to change and implement new technologies quickly.

While Equinix and Digital Realty have the largest network of data centers by far, their size may prove to be a problem when it's time to implement new technology. As technology advances more rapidly every day, having a large network with hundreds of data centers may not be as important. Companies may be able to get just as much out of fewer facilities, without the cost of operating a large portfolio.

Data center REITs are a very new type of REIT that's not very well understood, so it's hard to understand what the real estate needs of cloud computing will be in the next decade. However, a real estate investment that benefits from cloud computing may prove to be a big win.

Data REIT Market Cap Dividend Yield FFO (TTM)
EQUIX 63.19B 1.49 1332.2
DLR 38.68B 3.11 1248.8
CONE 8.79B 2.62 381.9
QTS 4.27B 2.85 167.3
COR 4.58B 4.04 248.4

Source: NAREIT

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Kevin Vandenboss has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (C shares), Amazon, Digital Realty Trust, Equinix, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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