One “compelling emerging” theme identified by Citi is to invest in real estate, along with stocks and REITs

According to Citi, data centers are the one location that real estate companies are now focusing on.

“The growth of industrial and diversified companies into data centers is one of the compelling emerging themes globally across Real Estate,” stated Citi.

In a June 17 report, the bank said, “Real estate businesses across the globe are creating strong enthusiasm to explore and expand their data center footprints,” citing the greater potential returns from data center expansion.

Citi observed that nearshoring and artificial intelligence are two key themes driving the trend toward data centers.

Large amounts of processing power required for AI workloads are stored in data centers. As more and more tech businesses quickly construct artificial intelligence infrastructure, this need will only increase. Huge language models need a lot of storage space in the data center.

According to Citi, more industrial businesses are looking to turn their warehouses into data centers. However, the bank states that it thinks supply growth is being “restricted” by the high power needs of hyperscale data centers—those built for AI requirements—and the restricted availability of power transmission.

Because of this, Citi predicted that over the coming years, demand would either maintain up with or surpass supply, improving KPIs and development returns for the data center sector.

It predicted that the demand for data center power would increase at a compound annual growth rate in the mid-teens until 2030. “We predict development and construction of hyper-scale data center capacity will grow meaningfully over the next 7 years, fueling interest from a variety of global industrial and diversified players,” the report stated.

The statement went on, “We wouldn’t be shocked if some industrial companies partnered more closely with current data center platforms and providers to access their supply chain, redevelop warehouses, and create win-win situations to break into the hyper-scale data center market.”

The bank identified three “direct beneficiaries” of the growing demand for data centers: US-listed investment trust for real estate Trust Digital Realty.

About half of Digital Realty’s sales pipeline is derived from anticipated AI workloads, and the company has stated that half of its bookings in the first quarter were “likely related to AI workloads in some form,” according to Citi.

“Given our top-down industry outlook and the share DLR can take, we believe Digital Realty’s data center bookings are likely to sustain an upward bias and could exceed our outlook,” the statement continued. “Digital Realty has the potential to generate better returns on capital through robust bookings and competitive pricing.”

According to Citi, Equinix offers a “valuable hub” that allows users to join a variety of cloud and generative AI applications. This is also a play on Nvidia derivatives since Equinix is providing a “fully managed service for Nvidia AI,” according to Citi. The bank stated, “We believe growth prospects seem underappreciated at the current price.”