1 Top Stock to Play the Data Center Boom

Top tech companies' capital expenditures (capex) in data centers are projected to reach $602 billion this year. The St. Louis Federal Reserve has said that the "scale and speed of recent AI investment have prompted comparisons with IT investments during the dot-com period." And this boom has quite a bit of runway left.

Earlier this year, real estate services company Jones Lang LaSalle projected an "infrastructure investment supercycle" in data centers that could reach $3 trillion by 2030 -- all driven by insatiable demand for artificial intelligence-related products and services.

But while any number of companies stand to profit from this build-out -- from tech names like Nvidia and Taiwan Semiconductor to power and cooling system companies like Vertiv -- retail investors might not often think of data centers as a real estate play.

Landlord of AI

That's where a landlord of the AI revolution, Equinix (NASDAQ: EQIX), comes in. The company has been trading recently at all-time highs, up about 29% since the beginning of the year. Unlike many other companies in the tech or tech-adjacent space, Equinix is a real estate investment trust (REIT), which offers investors certain advantages.

The company's core business is acquiring data centers and then leasing space and capacity to clients. Its clients include the world's biggest cloud providers, like Amazon Web Services (AWS) and Alphabet subsidiary Google.

REITs are required by law to return at least 90% of taxable income back to shareholders every year, making them of interest to investors seeking income. Equinix has increased its quarterly dividend for 11 consecutive years.

Image source: Getty Images.

Strong numbers

There's a voracious and growing demand for AI. As much as AI is already a part of our lives -- both at home and at work -- most technologists see this as only the beginning.

Equinix has strong fundamentals. In its most recent earnings report in February, the company showed $9.2 billion in revenue, a 5% increase over the previous year. Its guidance for 2026 is for roughly 10% growth in revenue.

Data source: Company financials. YOY = year over year.

With a market cap of around $95 billion, Equnix is one of the world's biggest players in not just data centers but also real estate more broadly. It generates recurring revenue through monthly fees, as well as one-time fees for various services -- like helping companies manage their digital infrastructure or enabling direct data links between two companies in the same data center. Its revenue picture is diverse and stable.

Some challenges

Equinix's business is a capital-intensive one, which can be fine as long as the company and market can sustain it. While Equinix, in a sense, belongs in the tech vertical, it operates differently from many others in the sector.

Unlike software companies, for example, which command a multiple premium because they generally have low capital expenditures, Equinix's business requires regular, significant investments. Equinix plans to invest between $4 billion and $5 billion annually through 2029. Even in a fast-growing market, that will impact profits.

While other data center plays -- like Microsoft, Nvidia, Arista Networks, or Digital Realty -- are also getting positive attention from Wall Street, I like Equinix as it has steady and recurring revenue, and its business is critical to meeting the growth in AI demand. This is why it's likely the best long-term bet in the data center vertical, even as AI growth is likely to be volatile, if broadly positive.

Even in roaring bull markets, it's not always obvious which investments are the best long-term buys. But data centers cannot exist without the land they're built on, and thus, a company like Equinix stands to be a top stock to own during the next phase of AI build-out.

Matt Hunter has no positions in the stocks mentioned in this article. The Motley Fool has positions in and recommends Alphabet, Amazon, Arista Networks, Digital Realty Trust, Equinix, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Vertiv. The Motley Fool has a disclosure policy.