These Dividend Stocks Could Receive a Tailwind from a Data Center Rally

The backlash against artificial intelligence data centers could be a boost for real estate investment trusts in this space.

Protests have erupted across the country as hyperscalers consider building data centers to train and run AI models. Data centers not only occupy vast amounts of land, but also consume enormous amounts of electricity and water, and generate noise.

The debate is expected to intensify further in the lead-up to the midterm elections. A recent NBC News poll found that 69% of respondents oppose building an AI center in their area.

There are already more than 4,700 data centers across the country, and that number is expected to grow rapidly. PwC predicts that annual data center spending will increase from approximately $800 billion in 2026 to $1.8 trillion in 2050. Some states are enacting more laws to restrict or prohibit construction, and New York state has already implemented a construction moratorium.

Play AI with REITs

While hyperscalers are gaining traction, another way to join the AI ​​data center race is through real estate investment trusts. They are essentially landlords who build a space, own it, and then lease it to multiple tenants. Amazon, apple and oracleAccording to the National Association of Real Estate Investment Trusts, an industry group.

“New projects may be delayed amid political and community backlash, but could be a boon for existing projects and DC (data center) REITs, which have pricing power due to continued growth in computing demand,” Mizuho analyst Vikram Malhotra said in a Sept. 1 note.

According to Narite, data center REITs account for 13% of the US REIT market capitalization of $1.5 trillion. Public REITs own about 275 data centers in the U.S., which accounts for less than 10% of the country’s owned, operated and leased data centers, according to the group.

There are three data center stocks in the FTSE Nareit Equity REIT index. Digital Realty Trust, Equinix and iron mountain.

Recently signed Equinix Nvidiais the largest, with a market value of approximately $102 billion. The dividend yield is 1.99%, up about 37% since the beginning of the year. When Equinix released its results in July and raised its full-year outlook, second-quarter adjusted funds from operations (AFFO) exceeded expectations.

Digital Realty Trust, which has a market cap of $71 billion, has a yield of 2.59% and is set to rise more than 23% in 2026. In July, the company reported that adjusted FFO exceeded analyst expectations and raised its full-year outlook.

Iron Mountain has a dividend yield of 2.96% and has soared 42% this year, giving it a market capitalization of $34.7 billion. Second-quarter AFFO exceeded expectations, and Iron Mountain raised its full-year outlook.

Tailwind for REITs

Amanda Martinez, an analyst at Wells Fargo Investment Institute, said data center resistance could be a tailwind for REITS, although the story is nuanced.

On the other hand, supply and demand factors favor REITS as limiting new supply can increase the value of existing capacity, he said. If developing new capacity becomes difficult, companies with large pipelines of development sites with secure power permits will have a relative advantage, he added.

“On the other hand, allowing restrictions or moratoriums could put pressure on future growth by delaying development schedules and increasing costs,” Martinez said.

David Guarino, an analyst at real estate analysis firm GreenStreet, is bullish on Equinix and Digital Realty.

“Its size allows it to be agile,” he says. “So even if there are restrictions or pushbacks in certain markets, they have a large land bank and a large development pipeline that allows them to pivot into other markets, and so far that hasn’t slowed their growth story one bit.”

Additionally, their decades of experience means they have relationships with local governments, he said.

“They’re in a good position given their track record and ability to execute that people want to do business with them,” he said. “This can give you an advantage over new entrants who don’t have that skill set.”

Guarino prefers Equinix to Digital Realty, but both companies are doing “incredibly well.”

“As AI inference begins to accelerate, we will see more real-world use cases for low-latency AI, which will begin to benefit companies focused on leasing smaller tenants near population centers,” he explained. “That’s much more important to Equinix’s business than it is to Digital Realty’s business.”

Alex Pettee, president and director of research and ETFs at Hoya Capital Real Estate, is also bullish on supply and demand for data center REITs. Equinix and Digital Realty are both included in HOYA’s model portfolio.

“It’s clear that a pause is not good if one of the projects is canceled,” he says. “But as you downsize, the value of the data centers that already exist increases as zoning becomes stricter, power becomes harder to secure, and communities don’t want new facilities.”

He said that while the stock is not cheap compared to other REITS, it looks attractive compared to other AI deals.

“You get double-digit earnings growth, tangible real estate and infrastructure, recurring contract income, and a dividend yield of approximately 2% to 3%,” Petty said.