I said yesterday that I knew how to make President Trump’s TikTok plans pay – not just for the larger country, as he intends, but for you personally as well.

That’s through data-center real estate investment trusts (“REITs”).

They’re already the largest REIT category going into 2025, accounting for a whopping 13% of the larger sector. And believe me when I say they’re not even close to being done yet.

Not if Trump and TikTok have their way…

And Open AI, Oracle, and SoftBank…

And Lonestar.

I’ll break down those stories in a moment. But I should probably start by explaining what a data center is. As in really explain.

I don’t think the vast majority of people understand how much we rely on data centers. Without them, TikTok with its possible $1 trillion value (according to Trump) can’t exist. Neither can Amazon (AMZN) nor Netflix (NFLX).

The same goes for “non-tech” companies like Walmart (WMT), Home Depot (HD), Eli Lilly (LLY), Procter & Gamble (PG), JPMorgan Chase (JPM), and mission-critical government, utility, and security entities. Just to name a few. These organizations use enormous amounts of data that need to be stored somewhere.

Somewhere that’s safe from the elements and secure from theft. Which means data centers. I cannot stress how crucial these facilities are to our modern life.

To quote a real estate investment associate of mine, Hoya Capital, data centers are “the physical epicenter of the internet. Typically houses in windowless industrial-style buildings surrounded by massive generators and cooling equipment,” they “provide the critical infrastructure… to a variety of enterprise customers with different networking and computing needs.”

While some large companies can and do run their own data centers, there are specific REITs that offer such services. These REITs are already healthy and growing.

But considering the latest round of breaking news, I think they’ve got more potential than ever before.

Massive Amounts of Continuing and Incoming Data

This week really has been filled with some of the most fascinating news that directly relates to data centers.

I covered the TikTok story yesterday. But basically, Trump gave a stay of execution to the social media platform on his first day in office.

Congress, Biden, and the Supreme Court had all ruled in favor of forcing owner ByteDance, a Chinese company, to either sell TikTok to an American entity or shut down all American operations. But then Trump stepped in to give it a 75-day evaluation period.

Or perhaps we should say “negotiation period” instead, since he thinks the U.S. “should get half” of TikTok if he allows it to stay. And I imagine he’s not just talking about profits; there will doubtlessly be other concessions as well.

Basically, ByteDance can play ball with Trump’s demands… or lose everything.

Something tells me it’ll chose the former. Which means America will keep consuming massive amounts of data on TikTok alone.

You see, an hour of browsing on the app apparently requires between 840 megabytes and 1 gigabyte of data. Multiply that by 1,925 billion global users, and let’s just say it adds up.

Then here’s the artificial intelligence infrastructure joint venture project between OpenAI, Oracle, and SoftBank that Trump is talking up. Newsmax wrote yesterday how:

The new entity, Stargate, will start building out data centers and the electricity generation needed for the further development of the fast-evolving AI in Texas, according to the White House. The initial investment is expected to be $100 billion and could reach five times that sum.

These companies wouldn’t commit that kind of capital unless they thought it was going to pay off – big time, with more and more data generated and in need of housing.

Data Centers Are Literally Shooting for the Moon

New data centers are sprouting up all over the world, but they can barely keep up with growing demand. That’s why Lonestar Data Holdings, a space startup, will become the very first company to build a physical center…

On the moon.

This isn’t a pie in the sky idea. Nor is it just on paper. The company will actually launch a fully assembled data center late next month, with committed customers already signed up:

  • The state of Florida

  • The Britain-affiliated Isle of Man’s government

  • Valkyrie, an AI firm

  • Imagine Dragons, a pop-rock band you may (or may not have) heard of

And I’m sure there are more clients to come, especially as AI initiatives intensify. If the stories I already cited didn’t convince you as much, consider the Goldman Sachs report from last May. The bank estimated that annual data-center power consumption from AI – despite it being a still-emerging technology – will average out at 200 terawatt hours between 2023 and 2030.

All of this is why Deutsche Bank analyst Matt Niknam recently wrote that:

Momentum remains with robust demand (AI/hyperscale/enterprise) and space/power constraints that are unlikely to moderate anytime soon, creating a highly favorable demand and pricing backdrop with yields on new developments that continue to improve.

He then upgraded Digital Realty Trust (DLR), the world’s largest pureplay data-center REIT, from a Hold to a Buy.

It’s worth mentioning that DLR has been in our Wide Moat Letter portfolio since October of 2022. And as I write, the position is up 92%.

I believe the same logic for DLR applies to Equinix (EQIX), DLR’s closest competitor, as well as Iron Mountain (IRM). While that last REIT is a hybrid, with most of its revenue still coming from its high-end storage services… It’s been building up its data-center properties for years. The result, so far, is that a solid 10% of its revenue now comes from the sector.

All three REITs have so much going for them. However, I’d love to see their valuations come down a bit before I whole-heartedly recommend them (DLR is currently a Hold in our portfolio).

But rest assured they’re all on my watchlist. These companies are riding a wave that could easily turn into a tsunami.

Regards,

Brad Thomas
Editor, Wide Moat Daily

P.S. As I informed subscribers to my small-cap service, Wide Moat Confidential, I’m planning to conduct monthly “boots on the ground” research in 2025, including a trip next week to Arizona, followed up by a trip to Iowa in a few weeks. In Iowa, I plan to visit this 365-acre site where 3.3 million square feet is underway for development into new data-center capacity. I know it doesn’t look like much… yet. But I hope to tell readers why this site interests me so much in the weeks ahead.

MAILBAG

Do you agree with Brad that data-center REITs are still on the rise? Write us at [email protected].