Can the Global X Data Center REITs & Digital Infrastructure ETF Build on its Growth This Year?

The Global X Data Centre REITs & Digital Infrastructure ETF has had a strong few months, with the share price of top holding Equinix benefitting from data infrastructure-related demand and a link-up with chipmaker Nvidia’s supercomputer systems.

- VPN fund climbed 2.6% last week.

- Top holding Equinix up 1.1% despite news of insider selling.

- Data centre power demand is set to double by 2030, says commercial property consultancy Newmark.

The Global X Data Centre REITs & Digital Infrastructure ETF [VPN] gained 2.6% last week, as the share price of data infrastructure specialist Equinix [EQIX], the top holding in the fund, increased 1.1% over the week.

In January, Equinix announced it is partnering with Nvidia [NVDA] to give corporate clients access to the chipmaker’s DGX supercomputing systems. The EQIX share price closed up 2.5% on 25 January, the day after the news, and is up 13.6% year-to-date as of 11 March.

However, last week Equinix Chief Accounting Officer Simon Miller sold 382 shares in the company, worth a total of $343,116, according to an SEC filing on 4 March. The EQIX share price hit a 52-week high that day, but closed down 2% the following day. Then over the weekend, another filing revealed that Chief Sales Officer Michael Campbell had sold 528 shares of the company last week.

The VPN fund invests in real estate investment funds (REITs) that support data centres and companies invested in digital infrastructure. The fund has gained 21.1% in the last six months and 29.9% over the past year.

Equinix Share Price on a Roll

The top holding in VPN is Equinix, with a 12.3% weighting as of 10 March. The company, which is the largest data network operator in the world, supports clients including Alphabet’s [GOOGL] Google, Amazon’s [AMZN] AWS and Zoom [ZM].

Equinix last posted earnings on 14 February, when it announced $8.2bn of revenues for 2023, a hike of 15% year-over-year on a constant currency basis. The company highlighted earnings of $10.31 per share, a rise of 34% year-over-year, and said it had closed almost 17,000 deals with more than 5,900 customers throughout the year.

Looking to 2024, the company said it anticipated revenue would rise 7–9% to the range of $8.8–8.9bn, and EBITDA to increase 10–13% to $4.1–4.2bn.

CEO and President Charles Meyers added in a statement Equinix had achieved “an amazing 21 years of consecutive quarterly revenue growth”, while its flexible Platform Equinix allowed “customers to build hybrid and multi-cloud infrastructure” in line with their needs.

Equinix shares have gained 18.7% in the past six months and 35.9% over the past year.

The second-biggest holding in VPN’s portfolio is Crown Castle [CCI] with a 11% share of the portfolio. The REIT manages, owns and leases a combination of towers, fibre solutions and cell networks, with its customers in the US including AT&T [T], Verizon [VZ] and T-Mobile [TMUS].

Crown Castle last posted earnings in January, reporting full-year EBITDA for 2023 up 2% to $4.4bn. Site rental revenues surged past expectations to $243m, up 4% year-over-year. According to Forbes, it was one of the more reliable REITs for dividend income in 2023.

Data Centre Market Driven by AI

Investments in global data centres are forecast to reach $410bn in 2025, from $321bn in 2022, as the demands imposed by 5G networks, smart grids and other digital infrastructure programmes increase, according to Statista.

According to a January report by global law firm Clifford Chance, the global data centre market could grow at pace to 2031, with artificial intelligence (AI) technology a major driver. The AI market is expected to reach a value of $2trn by 2030, while modular data centres could reach $81.2bn by 2030, said the report. As the industry expands further, the players in the VPN fund could stand to benefit.

However, the data centre industry also faces well-publicised challenges to becoming more sustainable and energy efficient.

Data centres consume almost 3% of the world’s electricity, wrote Forbes contributor Ben DeBow in June last year, with almost half of this required for cooling. Meanwhile, commercial property consultancy Newmark said in January that power demand could be set to double by 2030.

At present, the VPN fund is regarded as a ‘moderate buy’ by a consensus of 26 analysts at TipRanks.

A consensus of 14 analysts at Tipranks rate Equinix stock a ‘strong buy’. In February, Jefferies analyst Jonathan Petersen maintained a bullish ‘buy’ rating on the stock.

At Tipranks, 12 analysts offer a consensus rating of ‘hold’ for Crown Castle.