Data center REITs are set up for a strong second quarter -- and the political backlash against data centers may even play into their hands.
The artificial-intelligence-driven data center boom has been lifting the American economy, and sparking political blowback. On Tuesday, New York became the first state to impose a moratorium on the construction of new data centers, targeting so-called hyperscale installations that draw 50 megawatts of power or more. As a recent Barron's cover story noted , that resistance has been a nagging issue for companies that operate huge data centers, including Microsoft, Alphabet's Google, and CoreWeave.
For the handful of real estate investment trusts that own and operate data center properties, the boom is likely to continue, say Wall Street analysts.
Equinix, the market's largest player, is up 33% this year. Analysts expect second-quarter funds-from-operations growth of 14% when it reports on earnings on July 29. The market's second-biggest player, Digital Realty Trust, whose shares have rallied 12% in 2026, is expected to show FFO growth of 6%. Digital Realty reports on July 23.
Equinix yields 2% and Digital Realty 2.8%. That's relatively low for real estate stocks, but may still be attractive to income investors, considering the S&P 500's overall yield is just 1%.
Oppenheimer analyst Timothy Horan raised his long-term profit targets for both companies on Wednesday, citing "unprecedented demand for compute capacity, which continues to exceed supply and fuel shortages."
He noted the types of data centers the REITs focus on -- collocation centers -- are in particular demand. These facilities, in the five- to 10-megawatt range, tend to be smaller than the massive projects recently undertaken by hyperscalers, and they stand to benefit as AI usage transitions from model training to inference, or running AI tasks.
"Inferencing is still early stages, as are AI applications, but approaching hockey-stick adoption," he writes. "It will require more edge datacenters located closer to the end users with major networking improvements to support ultra low-latency use cases and access to dozens of databases."
Guggenheim also weighed in on the sector Wednesday, with analyst Joseph Osha upgrading Digital Realty to buy from neutral with a $200 price target, about 15% above today's price of $174.
He thinks political opposition to data center construction around the country could end up making Digital Realty's existing portfolio more valuable. "With multiple other states weighing similar curbs, we think DLR's grandfathered footprints...are effectively irreplaceable," he writes. "That scarcity translates directly into pricing power and, in our view, pushes hyperscalers facing their own build delays toward longer, higher-quality leases with the incumbents."
Morgan Stanley also thinks Equinix and Digital Realty are well positioned thanks to their focus on comparatively small collocation facilities, according to a note Tuesday.
While Morgan Stanley acknowledges political headwinds could slow capacity additions, the firm "remain[s] constructive" on the data center REITs for several reasons, writes Michelle Weaver.
Weaver notes the smaller collocation centers are less likely to engineer political blowback. They are also must-have infrastructure, handling not just AI inference, but traditional work loads from enterprises like school hospitals and other businesses.
"Their critical role in connectivity should result in softer political pushback during planning and development," she writes.
Write to Ian Salisbury at ian.salisbury@barrons.com
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(END) Dow Jones Newswires
July 15, 2026 14:39 ET (18:39 GMT)
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