Data centers are the new gold rush: $43 billion—Are you ready to stake your claim? 💸

Since 2020, more data has been created than in all of prior recorded history, leading to substantial investment opportunities in the data center industry. Blackstone’s $10 billion acquisition of QTS Realty Trust three years ago has grown to over $25 billion, a 150% return. Other major investments include EQT’s planned purchase of Global Switch Holdings for $6 billion, KKR and GIP’s acquisition of CyrusOne for $15 billion, and DigitalBridge’s purchase of Switch for $11 billion. In total, $43 billion was spent on U.S. data center deals from 2021 to 2023, a fivefold increase over the previous three years.

Tech giants like Amazon, Google, Meta, and Microsoft heavily invest in data centers to support their cloud operations, with projections indicating they may spend nearly $200 billion on data centers by 2025. The U.S. plans to triple its data center capacity within six years, supported by investments from private equity, colocation companies, and Big Tech. Hyperscale data center capacity has doubled globally in the past four years and is expected to double every four years for the next decade. The U.S., particularly Northern Virginia, leads in hyperscale capacity, accounting for 51% of the global total.

Major Investments in Data Centers

Blackstone’s Acquisition of QTS Realty Trust

Three years ago, Blackstone acquired QTS Realty Trust, a provider of carrier-neutral data centers, for $10 billion. This strategic investment has paid off handsomely, now valued at over $25 billion, reflecting a 150% return. This acquisition highlights the lucrative potential of investing in data centers.

Other Notable Private Equity Investments

Blackstone is not the only player recognizing the value of data centers. Several private equity firms have made substantial investments in this space:

• EQT: Plans to purchase Global Switch Holdings for $6 billion.
• KKR and GIP (now owned by BlackRock): Acquired CyrusOne in 2022 for $15 billion.
• DigitalBridge: Purchased Switch for $11 billion in 2022.

In total, $43 billion worth of U.S. data center deals were closed between 2021 and 2023, marking a more than fivefold increase compared to the previous three years.

Tech Giants’ Involvement in Data Centers

The Big 4’s Data Center Expenditure

Tech giants like Amazon, Google, Meta, and Microsoft operate profitable cloud computing services that depend heavily on reliable data centers. These companies are expected to invest heavily to maintain and grow their operations. Katusa Research forecasts that these Big 4 companies could spend nearly $200 billion on data centers by 2025. This massive investment underscores the critical role of data centers in supporting cloud computing and other digital services.

U.S. Plans for Data Center Expansion

Tripling Data Center Capacity

The U.S. plans to triple its data center capacity over the next six years. This ambitious expansion is driven by increasing demand for digital infrastructure from private equity firms, colocation companies, and Big Tech. According to Brookfield Partners, we are in a “once-in-a-generation investment cycle for data centers,” presenting significant opportunities for investors who strategically position themselves in this growing market.

Hyperscale Data Centers and Their Growth

The capacity of hyperscale data centers worldwide has doubled in the past four years and is expected to continue doubling every four years over the next decade. This growth is largely fueled by the increasing demand for cloud services and AI tools. The U.S. remains the leader in hyperscale data center capacity, accounting for 51% of the global total. Northern Virginia, in particular, stands out as the largest data center market globally, housing one-third of the U.S. capacity.

Institutional Investment and Market Demand

Strong Institutional Investment

Institutional investors are showing robust interest in the data center sector, with 97% of surveyed investors planning to increase their capital deployment. This interest is driven by strong demand and limited supply, leading to higher rental growth rates and fewer vacancies. The solid fundamentals of the data center market make it an attractive investment destination.

Insights

• Data creation has exponentially increased since 2020.
• Significant investments in data centers indicate high growth potential.
• Major tech companies are leading in data center investments.
• The U.S. dominates global hyperscale data center capacity.

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Core Topics:

1. Exponential Data Growth: More data created since 2020 than ever before.
2. Investment Surge: Billions invested in data centers, with substantial returns.
3. Tech Giants’ Involvement: Amazon, Google, Meta, and Microsoft drive data center demand.
4. Future Projections: U.S. data center capacity set to triple in six years; continued global expansion.

The Guerilla Stock Trading Action Plan

1. Investment Focus: Prioritize investments in data center companies and related infrastructure.
2. Market Analysis: Track leading tech companies and their data center expenditures.
3. Geographical Insights: Focus on key markets like Northern Virginia for potential opportunities.
4. Trend Monitoring: Stay updated on global data center capacity growth and technological advancements.

Forecast For Data Center Capacity Growth

The forecast for data center capacity growth indicates significant expansion driven by increasing demand for cloud services, artificial intelligence (AI), and other digital applications.

Global Growth: The capacity of hyperscale data centers worldwide has doubled in the last four years and is expected to continue doubling every four years over the next decade. This growth is primarily driven by the demand for cloud services and AI tools[5].

Regional Insights:

• United States: The U.S. remains the leader in hyperscale data center capacity, accounting for 51% of the global capacity. Northern Virginia is the largest data center market in the world, housing a third of the U.S. capacity[5].
• Europe and China: Europe and China follow, with 17% and 16% of the global capacity, respectively[5].
• Nordics: The power capacity in the Nordics is expected to grow at a combined rate of 11% through 2027, outpacing other European regions[2].

Market Projections:

• The global data center market size is estimated to reach $418 billion by 2030, growing at a compound annual growth rateThe world of finance is replete with complex concepts, but one that stands as a cornerstone for investors seeking to gauge returns is the Compound Annual Growth Rate (CAGR). Often ... More (CAGR) of 9.6% from 2023 to 2030[6].
• Hyperscale data centers are projected to increase their rack density at a CAGR of 7.8%, with average rack density expected to reach 50kW per rack by 2027, up from the current average of 36kW[1].

Investment Trends: Institutional investment in data centers is robust, with 97% of surveyed investors planning to increase their capital deployment in the sector. This is driven by strong demand and limited supply, leading to higher rental growth rates and fewer vacancies[4].

Overall, the data center industry is poised for substantial growth, fueled by technological advancements and increasing digital infrastructure needs.

Looking Ahead

The data center industry is poised for substantial growth, fueled by technological advancements and the increasing need for digital infrastructure. With significant investments from private equity firms and tech giants, the sector is set to expand rapidly. The U.S. plans to triple its data center capacity in the coming years, further emphasizing the potential for wealth-building opportunities in this space. Investors who recognize and act on these trends can position themselves to benefit from this once-in-a-generation investment cycle in data centers.

Citations:
[1] https://www.us.jll.com/en/trends-and-insights/research/data-center-outlook
[2] https://brightlio.com/data-center-stats/
[3] https://www.cbre.com/insights/books/us-real-estate-market-outlook-2024/data-centers
[4] https://www.cbre.com/insights/reports/2024-global-data-center-investor-intentions-survey
[5] https://www.datacenterdynamics.com/en/news/hyperscale-data-center-capacity-to-double-every-four-years-report/
[6] https://www.linkedin.com/pulse/data-center-market-forecast2024-2030-ravalika-m-wiggc