SKN | BMO Capital Markets Identifies Data Center Stocks Positioned to Navigate Rising Development Risks

Key Takeaways:

• BMO Capital Markets identifies Digital Realty, Equinix and Csquare as data center companies positioned to manage potential development delays and regulatory restrictions.
• Analysts Ari Klein and John P. Kim argue that vacancy rates below 1% and sustained AI demand could strengthen pricing power for established operators.
• BMO maintains Outperform ratings on all three companies, emphasizing differences in geographic diversification, development exposure and existing infrastructure.

BMO Capital Markets is highlighting the growing importance of infrastructure positioning as regulatory uncertainty creates additional challenges for data center development. Following election results in key U.S. states, the possibility of new restrictions and development moratoriums has increased. In its assessment, BMO believes companies with established facilities, diversified capacity and existing land resources could be better positioned to benefit from constrained supply, particularly as demand for artificial intelligence computing infrastructure remains strong.

BMO Sees Supply Constraints Supporting Established Operators

BMO analysts Ari Klein and John P. Kim note that potential legislation could complicate development timelines across the data center industry. However, the firm considers the sector’s sub-1% vacancy rates and continuing AI demand important supports for existing operators.

The research suggests that delays in bringing new facilities online could strengthen pricing conditions for companies with available capacity and established customer relationships. BMO also highlights that pricing for data center deals covering 25–100 megawatts increased at a compound annual growth rate of 15% between 2022 and 2026, with further potential gains if development restrictions delay additional supply.

Digital Realty Offers Scale and Geographic Diversification

BMO assigns Digital Realty Trust (DLR) an Outperform rating, identifying the company as a potential major beneficiary of stronger pricing. Although its development activities carry regulatory exposure, the firm highlights its diversified land portfolio following recent acquisitions. Digital Realty has nearly 1.5 gigawatts under construction, alongside approximately 8.4 gigawatts of land and shell capacity.

BMO estimates that Texas and Georgia account for approximately 25% of the company’s North American land bank, while Northern Virginia represents 12%. The company has also recorded 29.1% growth in trailing-twelve-month releasing spreads on renewals for agreements exceeding one megawatt. These figures underpin BMO’s view that Digital Realty has considerable capacity to capitalize on favorable pricing conditions.

Equinix and Csquare Present Different Risk Profiles

BMO also maintains an Outperform rating on Equinix (EQIX), emphasizing its geographically distributed operating platform. With 48 projects across 20 countries and typical development sizes of 40–60 megawatts, the company has less dependence on individual projects. BMO highlights 12% pricing growth on new deals and opportunities to improve pricing across its existing facilities.

For Csquare (CSQR), BMO sees comparatively limited exposure to potential development restrictions because of its brownfield-focused expansion strategy. Rather than relying on new greenfield developments, the company plans to add smaller increments of capacity at existing locations. This approach could reduce its vulnerability to permitting delays and restrictions affecting new construction.

BMO’s Outlook Depends on the Balance Between Supply and Demand

BMO’s assessment reflects a broader shift in how development risk may influence data center valuations and competitive positioning. Companies with existing infrastructure, diversified locations and expansion flexibility could gain an advantage if regulatory restrictions constrain new capacity. Nevertheless, the potential benefits depend on sustained demand, pricing strength and the ability to execute expansion plans.

For institutional investors, the key issue is how effectively each operator converts existing infrastructure into recurring revenue while managing capital requirements and regulatory exposure. BMO’s preferred companies offer different approaches to that challenge. Future developments in permitting policy, vacancy rates, leasing spreads and capacity additions will help determine whether the anticipated supply constraints translate into durable operating advantages.

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