Data centre market outlook
Real Estate
Kolytics’ report, the first in a series on the data centre sector, examines how the landscape is evolving amid surging AI-driven demand, mounting infrastructure pressures and a shift in focus from compute capacity to power availability. As the AI revolution transitions from hype to application, investor attention is shifting from core performance to grid access as the primary constraint. While current market conditions remain favourable and landlords benefit from pricing power amid grid bottlenecks, elevated valuations leave limited room for execution missteps. Risk-adjusted opportunities remain attractive; however, the materialisation of substantial downside risks could swiftly reshape the outlook. REITs covered include Digital Realty, Equinix and Iron Mountain.
Edition: 217
- 08 August, 2025
Field comments on spending on compute, data centre and edge build outs for AI
Technology
1) Data centre operators are running out of space, pre-selling new space and in some cases, aggressively looking to purchase space from end users - beneficiaries include Equinix and Digital Realty Trust. 2) Examples of hyperscalers, enterprises and innovative new AIaaS operators rapidly building compute. 3) Cloud optimisation efforts being viewed as “new normal” vs. temporary headwind. 4) After years of hype but slow growth for edge computing there is evidence that use cases are developing and demand is picking up - Crown Castle was mentioned by multiple industry contacts as benefitting from MEC and Lumen from increased demand for fibre connectivity. 5) Some interesting new data centre operators with well-timed AI infrastructure: Denvr Dataworks, Applied Digital and Napatech.
Edition: 164
- 07 July, 2023
Real Estate
The true economic returns on capital are below the cost of capital and it is getting worse not better. Private equity are turning from buyers to sellers of data centres. DLR trades at close to 90x this year's earnings and is burning $230m cash per month! It is highly leveraged with $18bn in debt and needs to do a combination of asset sales, dividend cut and an equity raise. Current data centres are being put up for sale at cap rates in HSD. At a 8-10% cap rate, DLR is a $23-$45 stock, implying 50-75% downside. The current bullish narrative is a far cry from reality as investors are going to find out the hard way.
Edition: 159
- 28 April, 2023
Equinix (EQIX) & Digital Realty Trust (DLR)
Real Estate
Data centres are dinosaurs - bulls have long argued that data centre operators, given their ties to data usage and the internet, deserve premium valuations. New Constructs disagree. They see poor / risk reward in both these stocks due to 1) Years of declining profitability. 2) Low pricing power in a commoditised industry. 3) Deep-pocketed customers becoming competitors. 4) Declining utilisation (overbuilding in good times). 5) Rising cost of commercial real estate makes improving ROIC unlikely. 6) Stock prices that imply immediate reversal in declining margins and years of above consensus growth. 60-80% downside.
Edition: 136
- 27 May, 2022