As consumers and companies shift to the “cloud”—where documents, photos, videos, music and business information are stored and accessed via the Internet—a novel approach to investing in the industry has emerged. You can buy shares of real estate investment trusts (REITs) that own millions of square feet of space where the computer servers that make the cloud possible are housed. These installations, in areas such as northern Virginia and California’s Silicon Valley, are not typical warehouses—they feature military-grade security, sophisticated cooling systems and a variety of high-speed Internet connections.
Cloud service providers including Amazon and Google—and companies such as eBay and Facebook that store data in the cloud—find it cost-effective to rent space from these REITs.
Growth of the cloud has been explosive. Nearly 60% of US companies now plan to use Web-based cloud services, up from 24% in 2014, according to research firm IDC. The six REITs that provide space for cloud-related computer servers generated $6 billion in revenue in 2015. In the past year, their share prices have risen 40%, on average, compared with 1.5% for the Standard & Poor’s 500 stock index. Several of the REITs still are attractive as their potential growth justifies higher share prices.
My favorite data-center REITs…
CyrusOne (CONE) has more than 940 clients, including more than 170 in the Fortune 1000.
DuPont Fabros Technology (DFT) provides space for several of the largest cloud-service providers.
QTS Realty Trust (QTS), which has more than 1,000 clients, buys large buildings in big markets and retrofits them, allowing it to expand inexpensively and rapidly.
