BMO Highlights Data Center Stocks as Development Risks Rise

BMO Capital Markets named Digital Realty Trust, Equinix and Csquare Outperform, arguing that sub-1% data-center vacancy and strong AI demand could support pricing for existing operators despite election-related risks of development delays and moratoriums. BMO cited DLR’s nearly 1.5GW under construction and 29.1% renewal releasing-spread growth; Equinix’s 12% growth on new deals and 48 projects across 20 countries; and 15% CAGR in pricing for 25–100MW deals from 2022–2026, with further gains possible if projects are delayed.

Analysis

The investable distinction is not simply “large installed base,” but how much capacity can be monetized without securing new permits, power, and grid connections. If local restrictions slow greenfield projects, existing powered capacity gains scarcity value; however, land banks alone do not remove execution risk when power delivery or permitting is the constraint. DLR therefore has the clearest upside to repricing if its large-project pipeline converts, but also greater exposure to delays and capital tied up ahead of revenue. EQIX’s smaller, distributed projects reduce single-site exposure, while CSQR’s brownfield approach may benefit from incremental demand—but neither eliminates utility or site-level bottlenecks.

Near term (days to weeks), treat this as a relative-positioning signal, not proof that moratoriums will be enacted. Over 1–3 months, monitor actual bills, permitting decisions, utility interconnection timelines, and company disclosures on energization versus announced capacity. Over 6–18 months, sustained scarcity could support leasing economics, but customer projects may relocate, defer, or seek alternative regions; elevated pricing is not necessarily equivalent to faster cash-flow growth.

Contrarian risk: the market may capitalize anticipated scarcity before projects are delayed, while overlooking demand elasticity and power availability. BMO’s deal and pricing observations are not independent evidence that future legislation will cause a material earnings revision. Valuation, regional power capacity, and project-level timelines are missing, so avoid an outright high-conviction sector long until verified.

Key Decisions for Investors

• Watchlist trade: consider a modest dollar-neutral long EQIX / short DLR only if legislative or permitting developments become concrete and relative valuation does not already price in DLR execution risk. The thesis is lower single-project exposure at EQIX versus greater pipeline sensitivity at DLR—not a claim that EQIX is cheaper.
• For DLR, require evidence that projects are reaching energization and leasing, not just remaining in the announced pipeline. A widening gap between under-construction capacity and delivered capacity, or guidance indicating longer timelines, would falsify the near-term scarcity-to-earnings thesis.
• Track EQIX and CSQR renewal/new-deal pricing alongside occupancy, customer deferrals, and power availability. Pricing strength without sustained leasing volume or delivered capacity would weaken the inference that supply constraints are translating into durable cash flows.
• Before adding sector exposure, verify the location and status of proposed legislation, project-level permitting and utility timelines, and company-specific valuation and funding data. If restrictions remain speculative and delivery metrics are stable, there may be no trade beyond relative-risk monitoring.