Two leading data center real estate investment trusts, Digital Realty and Equinix, saw their shares tumble on Monday amid growing concerns over a deceleration in AI development.
However, Digital Realty CEO Andrew Power remains defiant, arguing that calls from top AI firms like Anthropic, OpenAI, and xAI to slow down model iteration hardly signal a wholesale halt to AI or the real estate projects supporting it. He contends that the broader digital transformation demand, independent of AI, continues to underpin robust growth in cloud computing.
Where the real opportunity lies
According to JLL's global data center research and strategy lead Andrew Batson, the near-term growth engine for data centers centers on inference—the practical application of AI tools into everyday business workflows. With only a quarter of Americans using AI daily, massive adoption headroom remains even if new model releases slow down, ensuring continued upward momentum in data center demand.
The industry's hefty capital expenditure projections bolster this optimistic outlook. McKinsey forecasts AI will drive 70% of global data center compute demand by 2030, requiring nearly $7 trillion in global capital investment—with $3 trillion earmarked for real estate alone over the next five years, according to JLL.
How the giants are navigating the shift
Power explains that hyperscale cloud providers face tough choices: prioritizing commercial cloud services or diverting compute resources to AI labs. Meanwhile, regional variations persist, with markets like Northern Virginia, Dallas, Chicago, Singapore, Tokyo, Frankfurt, and Amsterdam all experiencing fierce competition for limited data center space.
"For years, demand has outstripped supply in the markets we serve," Power noted. "There's pent-up infrastructure need, and workloads are highly location-sensitive—they can't just run anywhere across the fifty states. Being a global player also lets us meet data sovereignty requirements abroad."
Beyond the short-term market noise
Analysts echo that a measured AI pace doesn't directly undermine hardware demand, focusing impact primarily on new model training. Batson emphasizes that capital from institutional players like Blackstone, BlackRock, and KKR continues to signal strong confidence in the sector. "Strip away the headline noise, and the fundamentals remain quite solid," he said.
Power acknowledges that while capital markets may penalize data center REIT shares, the company has braced for such scenarios. "We can't let short-term stock swings dictate strategy or operations. Years ago, we revamped our financing model, given our capital-intensive nature."
With construction pipeline ballooning to $20 billion—up from $10 billion at the end of 2023—Digital Realty is actively raising new private capital and launching targeted joint ventures. "Our balance sheet is optimized, liquidity is ample, leverage is low—we're ready to weather any storm. That said, I'm not suggesting we're on the brink of Armageddon," Power concluded.