Summary of J.P. Morgan Communications Infrastructure Conference Call Industry Overview - The data center industry is experiencing significant growth, driven by AI demand, with incremental capacity builds doubling from the previous year and expected to continue increasing in 2026 [1][4] - The market is segmented into enterprise colocation, traditional wholesale, and dedicated AI/cloud hyperscale builds, with robust pricing trends anticipated for colocation and wholesale services [1][3] Key Insights Data Center Capacity and Demand - For 2025, global data center capacity is projected to increase by 12.6 GW, reaching a total of 59.0 GW, which is a 27.1% year-over-year increase. Demand is expected to reach 86.8 GW, up 23.8% globally, resulting in a supply-demand gap of 23.7 GW [3][22] - In 2026, global supply is estimated to grow by 17.5 GW, a 29.6% year-over-year increase, with 11.0 GW coming from the U.S. [3][5] AI Infrastructure and Projects - The report highlights that AI-driven demand will continue to dominate the data center landscape, with mega-scale dedicated AI projects expected to be significant contributors to capacity growth [4][29] - The ongoing AI race is still in its early stages, and while the ultimate outcome is uncertain, industry capacity remains constrained [1][4] Towers and Leasing Revenue - The outlook for towers in 2026 is challenging due to issues with EchoStar and DISH, but there is potential for organic growth acceleration as the year progresses [3][4] - Domestic organic tower growth is projected at 1.9% in 2025, increasing to 3.9% in 2026, with total macro U.S. new leasing revenue estimated at $314 million, flat compared to 2025 [3][4] Challenges and Constraints - The data center industry faces several challenges, including long equipment lead times (18-24 months), skilled labor shortages, limited utility power availability, and elevated construction costs [6][10] - The rise of AI workloads has led to significantly higher power requirements, straining the data center capacity supply chain [6][19] Future Projections - By 2028, the supply-demand gap is expected to widen to 30.6 GW, with demand projected to reach 105.1 GW while supply is estimated at 74.5 GW [14][22] - The report anticipates that dedicated AI hyperscale projects will add approximately 5.3 GW in 2026, accounting for 48% of incremental U.S. capacity [31][34] Investment Opportunities - The emergence of AI-tailored hardware, such as Google's TPUs, is expected to drive additional demand for cloud on-ramps and enterprise colocation deployments [8][9] - Companies like Amazon, OpenAI, Meta, and Microsoft are making significant investments in AI infrastructure, which could lead to increased demand for data center capacity [36][40] Conclusion - The data center industry is poised for substantial growth driven by AI demand, but faces significant challenges that could impact capacity delivery and pricing dynamics. Investors should closely monitor developments in AI infrastructure and the associated supply-demand landscape to identify potential opportunities and risks.

Core Insights - Digital Realty has appointed Stephen Bolze as an independent director to its Board, effective January 1, 2026, bringing over 30 years of leadership experience in the energy and infrastructure sectors [1][2] Group 1: Appointment Details - Stephen Bolze's extensive background includes leadership roles at Blackstone and General Electric, where he managed a $28 billion global organization in power generation and services [2] - Bolze's expertise in driving innovation and operational excellence is expected to support Digital Realty's expansion and capacity delivery for customers [2] Group 2: Industry Challenges - Bolze highlighted that power availability is a significant challenge for the data center industry, emphasizing the need for reliable infrastructure to support growing demand in the digital economy [3] Group 3: Company Overview - Digital Realty provides a comprehensive range of data center, colocation, and interconnection solutions, with a global footprint of over 300 facilities across more than 25 countries [4] - The company's PlatformDIGITAL® offers secure data meeting places and methodologies for managing challenges related to data gravity and emerging technologies like artificial intelligence [4]

Core Viewpoint - Equinix (EQIX) is positioned as a superior investment compared to Digital Realty (DLR) due to its better track record, operations, and valuation [5]. Company Comparison - EQIX and DLR are both large-cap companies with market capitalizations of $71 billion and $55 billion, respectively, and operate globally with similar property maps [2]. - EQIX has demonstrated significantly higher growth in AFFO/share, tripling since Q1 2013, while DLR has only seen a 191% increase [6][7]. Operational Strategy - EQIX focuses on building ecosystems within its data centers, enhancing value through direct connections between tenants, which creates a network effect [11][13]. - DLR has primarily built commodity data centers, which, while profitable, do not offer the same competitive advantages as EQIX's ecosystem approach [12][10]. Financial Performance - EQIX's AFFO/share growth has consistently outpaced DLR, with EQIX achieving a 335% increase compared to DLR's 191% since Q1 2013 [6][7]. - During the period from 2018 to 2022, EQIX maintained positive same-store NOI growth, while DLR experienced negative growth [15][17]. Valuation Insights - EQIX's stock price has decreased by approximately 25%, leading to a drop in its AFFO multiple from the 30s to 18.42X, making it an attractive investment opportunity [21][25]. - In contrast, DLR's valuation has not decreased as significantly, trading at 22X forward AFFO [27]. Future Outlook - EQIX's recent earnings report indicated strong growth, with AFFO of $965 million, an 11% increase year-over-year, and a positive outlook for future growth driven by record bookings and a large development pipeline [33][35]. - The company has a robust pipeline with $1.5 billion in preconstruction and $2.9 billion in construction, indicating a strong growth trajectory [38][40]. Conclusion - Both EQIX and DLR are well-positioned to benefit from the growing demand for data centers, particularly in the context of AI development, but EQIX is expected to outperform due to its superior operational strategy and more attractive valuation [45].

Core Insights - Investors face a clear divide between traditional real estate REITs like Realty Income and digital infrastructure REITs like Digital Realty, with the former focusing on stable income and the latter on growth tied to digital transformation [1][3] Realty Income Overview - Realty Income is recognized for its stability and reliability, with a portfolio of over 15,500 properties across 92 industries, leading to high occupancy rates of 98-99% [4][5] - The company has shown healthy revenue growth in Q3 2025, expanding its European presence and maintaining a disciplined investment approach [6] - Realty Income's monthly dividend has been increased 133 times since its listing, highlighting its commitment to income generation [6] - However, the company faces challenges such as competition from private capital, cautious credit monitoring in certain retail sectors, and vulnerability to tenant bankruptcies [7][8] Digital Realty Overview - Digital Realty is positioned at the forefront of AI and cloud expansion, with over 300 data centers supporting significant demand from hyperscalers and enterprises [9] - The company reported 10% revenue growth and 13% growth in funds from operations (FFO) per share in Q3 2025, with a backlog exceeding $850 million [10][11] - Digital Realty's development pipeline of 5 gigawatts positions it well to meet rising demands for AI and cloud services, providing strong revenue visibility [11] - Partnerships with renewable energy providers enhance its appeal to clients focused on sustainable computing [12] Comparative Estimates - The Zacks Consensus Estimate for Realty Income indicates year-over-year growth of 8.26% in sales and 1.67% in FFO per share for 2025, with some revisions trending downward [13] - In contrast, Digital Realty's estimates show 8.98% growth in sales and 9.54% growth in FFO per share for 2025, with upward revisions over the past 60 days [14] Price Performance and Valuation - Year-to-date, Realty Income shares have increased by 6.1%, while Digital Realty shares have decreased by 10%, both underperforming the S&P 500's rise of 18.6% [16] - Realty Income trades at a forward price-to-FFO of 12.84X, below its three-year median, while Digital Realty trades at 20.26X, also below its median [17] Conclusion - While Realty Income excels in consistency and income reliability, Digital Realty is better positioned for growth due to its alignment with the expanding AI and cloud markets [19][20] - For investors seeking long-term growth potential, Digital Realty is currently the more compelling option, supported by positive estimate revisions [20]

Core Insights - The REIT and Equity Trust - Other industry is experiencing strong demand across specialized property types, driven by e-commerce, cloud adoption, artificial intelligence, and connectivity, which supports high occupancy and pricing [1][4] - Anticipated rate cuts are improving financing conditions, attracting income-focused investors, and enhancing cash flow flexibility for REITs [5] - The industry faces challenges from older, less flexible properties that are at risk of obsolescence, while modern, tech-ready assets are favored [2][6] Industry Overview - The Zacks REIT and Equity Trust - Other sector includes a variety of REIT stocks across asset categories such as industrial, office, healthcare, and data centers, with economic growth being a key driver for real estate demand [3] - The performance of Equity REITs is influenced by the dynamics of their underlying assets and geographic locations, necessitating thorough analysis before investment decisions [3] Future Trends - Strong demand for specialized property types is shaping the industry's growth trajectory, with industrial real estate benefiting from e-commerce expansion and data centers seeing durable tailwinds from cloud computing and AI [4] - Office properties are stabilizing as workplace attendance improves, while healthcare assets are supported by aging demographics [4] Financing Conditions - Expectations for lower interest rates are enhancing sentiment towards capital-intensive real estate trusts, improving cash flow flexibility and refinancing capacity [5] - The income-producing nature of REITs is attracting investors, especially in volatile environments where stable yields are valued [5] Tenant Preferences - Evolving tenant preferences are creating pressure on older properties, which struggle to compete with modern, flexible buildings equipped with technology and amenities [6] - Industrial users are raising standards, favoring facilities that accommodate automation, while data center operators face constraints like power availability [6] Industry Performance - The REIT and Equity Trust - Other industry has underperformed the S&P 500 and the broader Finance sector over the past year, declining by 0.4% compared to the S&P 500's 16.4% increase [11] - The industry's current valuation, based on the forward 12-month price-to-FFO ratio, is 15.65, lower than the S&P 500's P/E of 23.59 and the Finance sector's P/E of 17.26 [13] Stock Recommendations - Welltower Inc. (WELL) focuses on senior housing and healthcare properties, showing strong momentum with over 20% normalized FFO growth year over year and a Zacks Rank 2 (Buy) [17][18][19] - Prologis, Inc. (PLD) specializes in logistics and warehouse facilities, achieving 62 million square feet of lease signings and maintaining a healthy occupancy rate near 95%, also holding a Zacks Rank 2 [22][23][24] - Digital Realty Trust, Inc. (DLR) focuses on data center properties, reporting improved earnings and steady revenue growth, with a Zacks Rank 2 as well [25][28][29]

Core Insights - The artificial intelligence boom is expected to drive significant demand for data centers, with an estimated $5.2 trillion needed for AI infrastructure investments by 2030 [3][4] - Demand for AI-ready data center capacity is projected to grow at an average rate of 33% annually from 2023 to 2030 [4] - AI's market value is forecasted to range between $1.7 trillion and $3.5 trillion by the early 2030s, with some estimates reaching as high as $7 trillion by 2035 [5] Industry Trends - Major tech companies are increasing their capital expenditures (capex) significantly, indicating sustained investment in AI and data centers [6] - Google has raised its 2025 capex outlook to between $91 billion and $93 billion, while Microsoft plans a 74% increase to $34.9 billion [8] - Meta has nearly doubled its capex to $19.37 billion, and Amazon projects $125 billion in capex for 2025, with further increases anticipated for 2026 [8] Investment Opportunities - Digital Realty Trust, a key player in the data center sector, offers a yield of about 3% and is heavily invested in AI infrastructure [9] - In its latest quarter, Digital Realty Trust reported funds from operations (FFO) of $1.89, exceeding expectations, and revenue of $1.58 billion, reflecting a 10.5% year-over-year increase [10] - The company has raised its guidance for FFO per share to a range of $7.25 to $7.30, and total revenue expectations for the year have been increased to between $6.025 billion and $6.075 billion [10]

Core Insights - Digital Realty has announced new connectivity to Oracle Cloud Infrastructure (OCI) FastConnect in Singapore, enhancing its offerings in the region [1][2] - The introduction of the Oracle Solution Center in Singapore aims to support customers in designing and validating hybrid and AI architectures [1][5] - This initiative reinforces Singapore's position as a strategic hub for digital infrastructure and AI transformation [1] Connectivity and Performance - The new connectivity will provide low-latency access and improved redundancy for customers in Southeast Asia, facilitating better support for hybrid and AI-enabled workloads [2][3] - OCI offers best-in-class security, consistent high performance, and predictable pricing, enabling enterprises to transition workloads to the cloud efficiently [2] Strategic Partnership - The partnership between Digital Realty and Oracle is focused on enabling enterprises to connect seamlessly to the cloud and scale AI innovations [3] - Digital Realty's global footprint allows customers to easily provision dedicated high-throughput private connections to meet evolving business demands [3][4] Ecosystem Development - Digital Realty participated in the launch of the Oracle AI Centre of Excellence in Singapore, aimed at helping organizations train teams and experiment in secure cloud environments [5] - OCI's network includes over 110 FastConnect global and regional partners, providing customers with dedicated connectivity options to Oracle Cloud Regions [4] Company Overview - Digital Realty operates a global data center platform, PlatformDIGITAL®, which supports a wide range of data center, colocation, and interconnection solutions [6] - The company has a footprint of over 300 facilities across more than 25 countries, facilitating access to connected data communities [6]

Core Insights - Digital Realty has announced new connectivity to Oracle Cloud Infrastructure (OCI) FastConnect in Singapore, enhancing its offerings in the region [1][2] - The introduction of the Oracle Solution Center in Singapore aims to provide a secure environment for customers to design and validate hybrid and AI architectures [1][5] - This initiative reinforces Singapore's position as a strategic hub for digital infrastructure and AI transformation in Southeast Asia [1][2] Connectivity and Performance - The new connectivity will offer low-latency access and improved redundancy for customers in Southeast Asia, facilitating better support for hybrid and AI-enabled workloads [2][3] - OCI provides customers with high security, consistent performance, and predictable pricing, enabling efficient migration of enterprise workloads to the cloud [2][3] Strategic Partnership - The collaboration between Digital Realty and Oracle is focused on enabling enterprises to connect seamlessly to the cloud and scale AI innovations [3][4] - Digital Realty's global footprint allows customers to easily provision dedicated high-throughput private connections to meet evolving business demands [3][4] Ecosystem Development - Digital Realty participated in the launch of the Oracle AI Centre of Excellence in Singapore, aimed at helping organizations train teams and experiment in secure cloud environments [5] - OCI's extensive network of over 110 FastConnect partners provides dedicated connectivity options to Oracle Cloud Regions, enhancing customer choices globally [4]

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **AI infrastructure** build-out, particularly in **Tier 1 data center markets**. The demand for AI is shifting from large super-compute facilities to more accessible metro colocation sites for better connectivity [1][2]. Core Companies Mentioned - **Digital Realty Trust (DLR)**: Positioned to attract customers seeking a balance of large footprint and low latency [2]. - **Equinix (EQIX)**: Best positioned for low latency workloads due to its leading interconnection offerings and market share in carrier hotels [2]. - **Iron Mountain (IRM)**: Smaller portfolio but strategically located in well-connected Tier 1 markets [2]. Key Insights on Latency - **Latency** is critical for AI applications, with inference tasks requiring sub-100 ms round-trip latency. The location of data centers significantly impacts this latency [3][16]. - **Tier 1 markets** are essential for low-latency applications, as they provide geographic proximity to end-users, which is crucial for applications like autonomous driving and high-frequency trading [21][22]. Enterprise Demand Trends - Enterprises are increasingly seeking smaller, low-latency infrastructure in Tier 1 markets rather than large-scale data centers in remote areas. This trend is driven by the need for fast, reliable performance for critical workflows [4][60]. - **AI adoption** is expected to accelerate enterprise demand for colocation services, with companies like DLR and EQIX reporting record leasing activity driven by AI-related demand [5][65]. Financial Projections - Data Center REITs are expected to deliver above-consensus revenue growth, with annual AFFO/share growth projected in the high single to low double digits [5]. - **Price targets** for key stocks are set as follows: DLR at $206.00, EQIX at $1,050.00, and IRM at $120.00 [6]. Market Dynamics - Vacancy rates in Tier 1 markets have dropped to historic lows, with power availability becoming a primary bottleneck for new developments. North America's vacancy rate fell to just **1.6%** in Q3 2025 [35]. - The supply-demand imbalance is enhancing landlords' pricing power, with DLR reporting **+8% cash re-leasing spreads** and IRM seeing **+13.9%** [36]. Competitive Landscape - Operators with existing inventory and rapid delivery capabilities are winning multi-megawatt pre-leases from hyperscalers and AI firms. The competitive advantage is increasingly tied to power access and network density [37]. - New entrants, primarily former Bitcoin mining firms, are pivoting to AI hosting but are building in remote locations, which may not meet the proximity needs for latency-sensitive applications [66][68]. Conclusion - The AI infrastructure landscape is evolving, with a clear bifurcation between large training clusters in remote areas and distributed inference workloads in Tier 1 markets. Companies with strong metro footprints and interconnection capabilities are best positioned to capture this growing demand [23][24].

Core Viewpoint - Digital Realty Trust is currently underperforming compared to the S&P 500, but it has significant potential to benefit from the AI megatrend in the coming years [1][2]. Company Overview - Digital Realty Trust owns over 300 data centers and serves more than 5,000 customers, including major tech companies [2][9]. - The company has a market capitalization of $55 billion and a current dividend yield of approximately 3% [7]. Data Center Comparison - Not all data centers are equal; Digital Realty's facilities are designed for general uses like web hosting and cloud computing, rather than specialized AI workloads [5][4]. - AI data centers, equipped with advanced technology like Nvidia's GPUs, are currently outperforming general data centers in the market [5][12]. Strategic Initiatives - Digital Realty is retrofitting existing data centers and constructing new AI-focused facilities, a process that may take up to 18 months [8]. - The company is positioned to leverage its extensive customer base and existing relationships with tech giants to secure future contracts [9][10]. Future Outlook - By 2030, Digital Realty is expected to have a significant number of AI data centers operational, which could enhance its cash flow and market position [10][11]. - The potential for exponential revenue growth exists once sufficient AI data centers are established to support long-term contracts [12][13]. Investment Consideration - Digital Realty Trust is viewed as a "show me" stock, with potential for growth in the long term, making it a possible buying opportunity for investors [11][14]. - The company offers a relatively stable investment compared to high-flying AI data center operators, appealing to those seeking lower risk with potential for significant upside [14].