Hey savvy investors! Today, we’re diving into the world of data centers, an industry that’s been making waves recently. But no, I’m not here to talk about Keppel DC REIT’s recent $1 billion acquisition of 2 data centers from its parent, which has gotten everyone talking. Other YouTubers have already done a stellar job unpacking that deal, so I won’t be adding to the buzz.

Instead, I want to take a step back and look at the broader data center industry in the U.S., a topic that’s been gaining attention since Donald Trump’s recent win in the 2024 U.S. presidential election. Specifically, we’ll firstly look at how this could affect two Singapore REITs that many of us are watching closely: Mapletree Industrial Trust and Digital Core REIT. In addition, we’ll also look at some U.S. listed investments that could directly benefit from the recent trends.

Now, before we dive in, let me remind you that this post is for informational and educational purposes only. Everything I share here is based on publicly available information and my personal analysis. Always consult with a licensed financial adviser before making any investment decisions. And yes, I may hold positions in the REITs discussed, but this doesn’t mean I’m endorsing them for you.

Alright, let’s explore how these developments could play out and what it means for us as investors looking to ride the data center wave!

What Trump’s Presidency Means to U.S. Data Centers

Let’s dive deeper into why Trump’s presidency could have a significant impact on the data center industry. Beyond the potential pro-business and deregulation policies often associated with his administration, there’s also the critical factor of AI, a sector likely to see a major boost under Trump’s leadership. Here’s how these elements come together to benefit data centers in the U.S.

First, let’s talk about AI-driven demand. The growth of Artificial Intelligence, especially in large-scale applications like autonomous vehicles, large language models, and advanced machine learning, requires a tremendous amount of computing power. This demand translates directly into the need for more data centers and upgrades to existing facilities. Think of data centers as the infrastructure powering all those AI breakthroughs.

Second, there’s the administration’s likely push for U.S. competitiveness in AI, which could take the form of large-scale national initiatives. A “Manhattan Project for AI” has been floated in policy discussions, but is yet to be confirmed. The project is a large-scale, government-led initiative to accelerate the development of artificial intelligence technologies, similar to the original Manhattan Project during World War II, which developed the first nuclear weapons. It represents an urgent, heavily resourced effort aimed at achieving a critical technological breakthrough to maintain national competitiveness, which if it goes through, would require vast data processing and storage capabilities, with data centers at the heart of it all.

Another interesting angle is the administration’s focus on energy production and infrastructure. Trump’s pro-energy stance, whether through fossil fuels or nuclear energy, could align well with the energy-intensive nature of data centers. AI applications in particular consume vast amounts of electricity, so a boost in energy availability could be a boon for the data center industry.

Finally, there’s the potential for deregulation that business analysts have been very excited about. Data centers often face significant red tape when it comes to zoning, environmental approvals, and building expansion. A deregulatory push from Trump’s administration could remove some of these barriers, speeding up the development and scaling of data centers.

In summary, Trump’s presidency has the potential to materially impact the data center landscape through AI-driven growth, regulatory shifts, and energy alignment. For investors in REITs or shares with data center exposure, this is a trend worth watching closely.

How Trump’s Administration Can Boost Data Center REITs

Trump’s return to the presidency could act as a catalyst for the data center industry. This presents a significant opportunity for data center-focused REITs like Digital Core REIT and Mapletree Industrial Trust or MIT, which are well-positioned to benefit from the growing demand for data storage and processing.

Let’s start with Mapletree Industrial Trust, or MIT. MIT has been a steady performer in the Singapore REIT space, known for its diversified portfolio that includes industrial properties, business parks, and a growing allocation to data centers. Today, about 55% of its assets are in data centers, spread across North America and Singapore. MIT is backed by a familiar and reliable sponsor, Mapletree Investments, which provides strong support and a pipeline for future growth.

On the other hand, Digital Core REIT is a pure-play data center REIT with its portfolio focused on North America. Its properties are strategically located in key markets like Northern Virginia and Los Angeles, which are global hubs for data center activity. Digital Core REIT also benefits from its sponsor, Digital Realty, one of the largest owners, developers, and operators of data centers worldwide. This gives Digital Core REIT access to a solid pipeline of acquisition opportunities in the rapidly expanding data center space.

For investors seeking direct exposure to the booming data center sector, Digital Core REIT may be the more suitable option. Its pure-play focus means that its performance is closely tied to the growth of AI, cloud computing, and data-driven technologies. If you’re bullish on the prospects of data centers and want to go “all in” on this sector, Digital Core REIT could be a choice to consider.

On the other hand, for those who prefer a more balanced and diversified portfolio, Mapletree Industrial Trust offers a different appeal. While data centers form a significant part of its portfolio, it also has substantial exposure to resilient sectors like Singapore industrial properties and business parks. This diversification provides more stability and reduces reliance on any single segment. Additionally, investors may find comfort in its familiar sponsor, Mapletree Investments, which has a strong track record of managing REITs in Singapore.

U.S. Listed Exposures for Investors

For investors seeking direct exposure to the data center industry but looking beyond Singapore REITs, the U.S. market offers an array of alternatives. These fall broadly into two categories: hyperscalers and U.S.-listed data center REITs. Each has its benefits and drawbacks, catering to different types of investors.

Hyperscalers

Hyperscalers are the giants of the tech industry, including companies like Amazon (through AWS), Microsoft (through Azure), and Google (through Google Cloud). These companies own and operate massive data centers that support their cloud computing services, making them integral players in the data center ecosystem.

The benefit of investing in hyperscalers is that they provide exposure to broader technological growth beyond data centers. These companies are leaders in cloud computing, AI, and other digital services, which can fuel substantial long-term capital appreciation.

On the other hand, one key downside is that data centers are only a portion of their overall business operations, so they aren’t pure plays on the data center industry. For example, AWS contributes significantly to Amazon’s revenue but is just one part of a much larger e-commerce and logistics empire. Similarly, Microsoft and Google derive significant earnings from software, advertising, and other services. This diversification can dilute the direct exposure to data center growth. Additionally, hyperscalers focus on reinvesting profits into growth initiatives, which means they offer little to no dividend income, making them less suitable for income-focused investors. Their share prices also tend to be more volatile, reflecting broader trends in the tech sector.

U.S.-Listed Data Center REITs

For those who prefer income-generating investments, U.S.-listed data center REITs like Equinix and Digital Realty Trust, which is the parent of Digital Core REIT, offer another route. These REITs specialize in owning and operating data center properties, generating rental income from leasing these spaces to cloud providers, enterprises, and IT service companies.

The benefit of the data center REITs offer a more direct play on the data center growth story, providing steady dividend income and exposure to real estate-backed assets. They are also a way to invest in the infrastructure supporting hyperscalers, as these REITs lease significant portions of their facilities to them.

On the other hand, U.S.-listed REITs are subject to a 30% withholding tax on dividends for Singapore-based retail investors, which can reduce the overall yield. However, for investors focused on capital appreciation, this may not be as significant. For example, over the past decade, Equinix’s share price has grown by more than 300%, while Digital Realty Trust has seen a similar upward trend, making their capital gains a key part of the investment case.

Comparing the Two Options

The key difference between investing in the hyperscalers and the data center REITs lies in their mix of income and growth, business models, and risk profile. Let’s have a quick look at them.

Growth vs. Income: Hyperscalers are growth-focused, offering potential for substantial capital appreciation. On the other hand, U.S.-listed REITs provide a mix of income and growth, catering to investors who value regular dividends.

Sector Exposure: Hyperscalers give you exposure to the broader tech ecosystem, including AI, cloud, and software services. Data center REITs focus specifically on real estate infrastructure, which may be less volatile but also more niche.

Risk Profile: Hyperscalers tend to be more volatile, reflecting the nature of the tech sector. Data center REITs, while also subject to market swings, are typically less volatile due to their real estate base.

It’s important to note that this section is meant to provide an introduction to these U.S.-listed alternatives rather than an in-depth analysis. These investments offer another way to participate in the growth of the data center industry but come with their own set of risks and considerations. Investors should also consider factors like currency exposure, tax implications, and brokerage fees when exploring U.S.-listed investments.

The Dividend Uncle’s Take

For my personal portfolio, I already hold Mapletree Industrial Trust and Digital Core REIT. Mapletree Industrial Trust’s diversified exposure to data centers and industrial properties fits well with my long-term goal of balancing growth and stability. Meanwhile, Digital Core REIT offers me a more focused exposure to the U.S. data center market, which I believe will benefit from structural tailwinds under Trump’s pro-AI administration.

Looking ahead, I am considering further increases in my holdings in Digital Core REIT, but only as prices correct further along with the rest of the REITs. I’m closely watching the market for better entry points, as I believe the current headwinds for REITs could present buying opportunities for my portfolio down the line. As always, it’s important for each investor to evaluate their own financial goals and risk tolerance before making similar decisions.

For now, I’m skipping the U.S.-listed data center REITs, and instead, I’ve chosen to focus on the hyperscalers, which operate extensive data center networks as part of their broader businesses.

While hyperscalers don’t provide pure data center exposure like REITs, many of them complement their data center operations with highly profitable business segments. Take Amazon, for example. Its A.W.S. or Amazon Web Services business is a market leader in cloud computing, which heavily relies on data centers for infrastructure. This means that as demand for cloud services grows, so too does the utilization and profitability of its data center assets.

These hyperscalers, including Amazon and Microsoft, also form part of my U.S. tech exposure, which has performed exceptionally well over the past few years. By investing in hyperscalers, I not only gain exposure to the data center sector but also tap into their diversified revenue streams and innovative growth strategies. It’s a way to stay invested in the data center trend while benefiting from their broader potential.

So, there you have it, savvy investors! The data center industry is evolving rapidly, and with Trump’s pro-business administration in place, we’re likely to see even more growth opportunities on the horizon. Whether you prefer a focused play like Digital Core REIT, a balanced approach with Mapletree Industrial Trust, or the broader tech exposure of hyperscalers, there are options to fit various investment strategies.

As always, this post is for educational purposes only, and you should consult with a licensed financial adviser for advice tailored to your financial situation. Let me know your thoughts in the comments below! What’s your take on the data center trend, and do you see it as a key part of your portfolio? If you found this post helpful, give it a thumbs up and subscribe to the channel for more insights on investing. Until next time, happy investing!