The Data Center Boom: How to Capitalize on the Growing Industry

AI and Cloud Computing are reshaping industries, increasing the demand for data center capacity and highlighting the necessity of universal internet access by 2030. Despite environmental challenges, data centers offer stable investment opportunities. Environmental challenges could be mitigated through energy-efficient designs, renewable power and in the long term with quantum technology integration. We explore the market mechanics of data centers and their vital role in supporting digital advancements. As the backbone of the digital economy, investing in data centers offers promising prospects among sustainability efforts and evolving technological landscapes. Are you interested in seizing this opportunity and investing in the future of our global digital infrastructure?

Revolutionizing Industries

AI and Cloud Computing are fundamentally transforming industries by simplifying processes, enhancing decision-making, and extracting insights from large datasets. As AI advances, its impact spreads across all sectors, leading to a surge in demand for data center capacity. Cloud computing has become essential for modern businesses, providing scalability, flexibility, and cost-effectiveness. As more businesses migrate to the cloud, the need for data center capacity to support these services continues to grow.

According to IEA, since 2010, the number of internet users worldwide has more than doubled (2X), and global internet traffic has increased by a factor of 25. This surge in digital activity has resulted in higher demand for data centers, energy consumption, and data transmission networks.

Essential Need & Mega Trends

Data has become essential for businesses, governments, and individuals, regardless of economic conditions. As the number of connected devices and data generation increases, scalable data centers become vital for our existence. They support mission-critical operations in sectors such as finance, healthcare, telecommunications, and government. Cloud computing and AI drive data center traffic and investment, making data centers the backbone of industry operations.

Looking ahead, the increasing adoption of emerging technologies like Augmented Reality (AR), Virtual Reality (VR), and the Internet of Things (IoT) is driving up demand for scalable and efficient infrastructure. As AR overlays digital information onto the real world, VR immerses users in virtual environments, and IoT connects devices to collect and exchange data over the internet. To accommodate these technologies, infrastructure must be capable of supporting their data processing and connectivity requirements efficiently with sufficient data center capacity.

Universal Connectivity Goals

The United Nations Sustainable Development Goals aim to achieve global internet access for all by 2030. Currently, about 3.7 billion people, nearly half of the world's population, lack internet access, with the least developed countries having only 19% connectivity. Closing this gap requires ensuring safe and affordable internet access for everyone, aligning with the Sustainable Development Goals. This objective underscores the vital role of data centers, as they are essential for expanding internet access and digital services worldwide. Meeting this goal will increase demand for data center capacity to support the growing volume of internet traffic and provide services to global communities.

Why are Data Centers a Smart Investment?

Broadly speaking, data centers are owned and operated in a couple of ways. Firstly, some companies own the centers and utilize them for their own needs. Alternatively, colocation companies lease out space and usually offer network capacity, power, and cooling equipment to regulate server temperatures. In summary, they can have the following characteristics:

• Essential Assets: Data centers are crucial hubs that enable various digital activities to function smoothly, supporting both social and economic interactions in today's digital world.
• Business Model Offers Resilient Cash Flows: Data centers establish stable income streams through both short and long-term contracts with dependable customers, ensuring consistent revenue generation with predictable cash flows. These contracts often involve financially robust tenants and include built-in price escalation mechanisms.
• Additionally, data centers located in prime areas benefit from low vacancy rates due to high demand. Contract lengths typically range from 3-5 years for short-term contracts to 15-20 years for longer-term contracts with flexible options to extend, highlighting the reliability of the company's income sources. These tenants are often well-established companies with essential long-term needs, further emphasizing the stability of the revenue stream.
• High Barriers to Entry for Competition: The data center industry is challenging to enter due to its high standards for infrastructure, costs, and services. Companies face certain challenges when attempting to switch data center providers due to the complex nature of the services and infrastructure involved. Additionally, data center operators continually improve their offerings and aim to establish extensive global networks, further solidifying their positions in the market.
• Predictable Growth: Previously, digital infrastructure was viewed as a niche and highly specialized sector. However, with the ongoing digitalization of the world and the growing demand for digital infrastructure, this sector is now transitioning into the mainstream global market. Data centers experience steady growth driven by ongoing digital trends, such as the increasing interconnection of networks and the adoption of cloud-based technologies. Additionally, longer-term technological advancements, as previously discussed, contribute to sustained data growth, ensuring a stable and predictable trajectory for the industry's expansion.

Sustainable Growth in Data

Rapid data center expansion poses environmental risks, including energy consumption and carbon emissions. Adopting energy-efficient designs, reliable renewable energy sources, and innovative cooling technologies can mitigate environmental impact. According to IEA, advancements in energy efficiency have played a crucial role in slowing the growth of energy consumption from data centers and data transmission networks, each contributing to 1-1.5% of global electricity use. These facilities also contribute to approximately 1% of energy-related greenhouse gas emissions.

In the long term, integrating quantum technology with AI could benefit the environment. Unlike traditional computing, quantum computing uses less energy as demand increases. This means that by using quantum technology, AI models can be more efficient and effective, leading to better performance and reduced energy consumption. This could help address certain concerns about the environmental impact of AI. So combining AI with quantum technology could be a key strategy for promoting sustainable development in this sector.

Invest in the Backbone of the Digital Economy

The rise of AI-driven innovations highlights the vital role of data centers in facilitating digital transformations across industries. As demand for data infrastructure surges, it is a compelling time to consider investing. The industry addressing sustainability concerns by embracing energy-efficient practices and in the future, leveraging advancements like quantum computing can help sustainable growth in the data center industry, supporting the evolving needs of the digital economy.

As the demand for universal internet connectivity surges, data centers stand at the forefront of this digital revolution. Is it time to invest in this backbone of our global digital economy?

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