BMO Highlights Data Center Stocks as Development Risks Rise

BMO Capital Markets highlights three data center stocks as rising development risks and potential moratoriums cast uncertainty over the industry. Despite these challenges, strong demand for artificial intelligence is expected to maintain pricing for existing operators with healthy vacancy rates.

1. Digital Realty Trust (DLR) is seen as the biggest beneficiary of the changing regulatory landscape. The firm holds nearly 1.5GW in active construction projects and approximately 8.4GW of land and shell capacity across key U.S. markets. With recent acquisitions in Kansas City and Indianapolis accounting for 45% of its domestic land bank, DLR faces higher development risk due to potential legislation but would likely reap the benefits of higher pricing should deals proceed as planned.

2. Equinix (EQIX) maintains a highly distributed platform with projects averaging 40-60MW. While no single project would have an outsized impact on the company, EQIX's 48 projects across 20 countries limit single-point risk. The firm has experienced strong pricing trends with a 12% growth rate on new deals and is actively pursuing month-to-month opportunities across its installed base.

3. Csquare (CSQR) is positioned as largely immune from potential development delays due to its focus on brownfield sites. The firm expects minimal impact from delays, as it aims to add small increments of capacity at existing sites without undertaking greenfield expansion. BMO Capital notes that pricing on deals ranging from 25-100MW increased at a 15% compound annual growth rate between 2022 and 2026, with further incremental growth anticipated if projects are delayed.