Investing.com– Mizuho (NYSE:MFG) Securities remains optimistic about the data center sector heading into fiscal 2025, raising price targets for Digital Realty Trust Inc (NYSE:DLR) and Equinix Inc (NASDAQ:EQIX) due to strong demand from cloud and AI investments.
However, Mizuho maintains a neutral stance on tower REITs like American Tower Corp (NYSE:AMT), citing lingering uncertainties in carrier capital expenditure and the pace of the 5G rollout. Tower REITs own and operate cell towers or communication towers.
Cloud and AI-related capex are expected to fuel robust data center demand in FY25, Mizuho analysts said in a note.
Cloud spending is projected to grow nearly 20% annually through 2027, reaching $1.34 trillion from $795 billion as of date, while AI capex from major hyperscalers could hit $310 billion by 2026. These trends support solid bookings and pricing power for data center operators, according to Mizuho.
Mizuho raised its price target for Digital Realty Trust to $211 from $170, emphasizing its ability to sustain pricing power through rent spreads, projected at 10% annually over the next two years.
Record bookings of $505 million in Q3 2024, well above the $195 million 1H24 average, highlight strong demand, analysts said. The brokerage expects DLR’s funds from operations (FFO) growth to reach high single digits by FY26, bolstered by lucrative development yields.
For Equinix , Mizuho increased its price target to $1,094 from $971. Despite investor concerns over delayed AI capital deployment, analysts see multiple growth levers.
EQIX's enterprise colocation business is expected to achieve high single-digit monthly recurring revenue growth in FY25, with EBITDA margins approaching 49% by FY26, according to Mizuho.
Mizuho remains cautious on towers, keeping American Tower at "Neutral" with no changes to its price target. Although carrier activity saw a slight increase in late 2024, tower job postings remain at decade lows, signaling muted growth in 2025-26, analysts said.
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