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The data center industry is experiencing an unprecedented boom, with demand skyrocketing due to the explosive growth of artificial intelligence (AI) and cloud computing. Recent reports highlight this trend, with data center vacancy rates hitting record lows of 2.8%, driving up prices. This insatiable appetite for data center capacity is reshaping the industry at breakneck speed.
Major tech players are making significant moves to support this growth. In September 2024, Microsoft (MSFT) and BlackRock (BLK) announced a $30 billion fund aimed at boosting AI data centers, underscoring massive capital inflows.
Utility provider Constellation Energy (CEG) also recently struck a groundbreaking 20-year deal with Microsoft to restart the Three Mile Island Unit 1 nuclear plant, providing clean energy for the tech giant's data centers. That pact started a legit Magnificent Seven trend, with Amazon (AMZN) and Alphabet (GOOG) striking exclusive nuclear power deals of their own this week to fuel up their respective data center ambitions.
These bullish developments have sparked interest in exchange-traded funds (ETFs) as a powerful tool for capturing the collective momentum of multiple stocks set to benefit from growth in data centers. Let's explore three ETFs that stand at the forefront of this data center revolution.
ETF No. 1: Global X Data Center REITs & Digital Infrastructure ETF
The Global X Data Center REITs & Digital Infrastructure ETF (DTCR) has emerged as a standout in the realm of specialized funds since its launch on October 27, 2020. In just a few short years, it has accumulated an impressive $125 million in assets under management (AUM), reflecting the growing interest in the data center industry.
DTCR's strategy is straightforward yet potent: it tracks the Solactive Data Center REITs & Digital Infrastructure Index, honing in on companies that operate the vital infrastructure of our digital world – data centers and the critical systems that support them.
This focused approach has yielded solid results, with the fund posting a 37.9% return over the past year and a 19.6% year-to-date gain.
DTCR's portfolio reveals a roster of data center industry giants, with its top five holdings accounting for over half of its assets. American Tower (AMT) leads the pack at 12.10%, followed closely by real estate investment trusts (REITs) Equinix (EQIX) at 12.03% and Digital Realty Trust (DLR) at 11.13%. Crown Castle (CCI) and GDS Holdings (GDS) round out the top five at 9.16% and 7.50%, respectively.
For those seeking a blend of growth potential and income, the fund offers a dividend yield of 1.16%, paid out on a semiannual basis. With an expense ratio of 0.50%, DTCR balances cost-effectiveness with specialized exposure. It's a modest fee for access to a curated basket of data center powerhouses. Plus, the fund's average daily trading volume of over 100,000 shares ensures sufficient liquidity for most market participants.
ETF No. 2: Defiance Connective Technologies ETF
The Defiance Connective Technologies ETF (SIXG) has been at the forefront of digital transformation since its launch in March 2019. As connectivity reshapes our world, SIXG has positioned itself as a pioneer in this revolution, offering a unique window into the companies driving the change.
SIXG’s upward trajectory is underscored by the fund's stellar 45.2% gain over the past year and a solid 25.6% year-to-date return. This surge aligns with the broader trend of increasing demand for connective technologies, fueled by the rapid adoption of AI, cloud computing, and 5G networks.
At the heart of SIXG's strategy lies the BlueStar Connective Technologies Index, a carefully curated collection of companies that generate at least half their revenues from connective technologies. This focused approach has allowed SIXG to tap into the convergence of data centers, 5G networks, and the broader digital infrastructure boom.
With $583.18 million in assets under management, SIXG has established itself as a significant force in the specialized ETF space. The fund's portfolio is a testament to its strategic focus. Tech powerhouse Nvidia (NVDA) leads with a 5.31% weighting, closely followed by Broadcom (AVGO) at 5.11%. Oracle (ORCL) accounts for 4.88%, while Apple (AAPL) and Cisco Systems (CSCO) round out the top five at 4.77% and 4.02%, respectively.
The fund's competitive 0.30% expense ratio makes it an attractive option for those seeking exposure to the connected technology sector without breaking the bank. SIXG also offers a modest 1.11% dividend yield, adding a modest income component to its growth-oriented profile.
For those eyeing SIXG, it's worth noting the fund's liquidity profile. With an average daily trading volume of fewer than 20,000 shares, larger positions may require some finesse when entering or exiting, and investors should exercise patience rather than chasing prices.
ETF No. 3: Global X Cloud Computing ETF
The Global X Cloud Computing ETF (CLOU) has carved out a distinctive position in the cloud computing investment landscape since its launch in April 2019. With a sharp focus on companies driving the cloud revolution, CLOU offers investors targeted exposure to this sector.
CLOU's strategy revolves around companies at the forefront of cloud computing innovation, and invests at least 80% of its total assets in securities of the Indxx Global Cloud Computing Index, which includes firms offering Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS). This focused approach allows access to the full spectrum of cloud computing advancements.
Over the past 52 weeks, CLOU has posted a 10.6% return, and has lagged YTD with a dip of 7.6%.
CLOU boasts $344.26 million in AUM, reflecting substantial investor interest in the cloud computing theme. CLOU's liquidity is healthy, with an average daily trading volume of around 200,000 shares, ensuring ease of entry and exit for most market participants.
CLOU's portfolio reveals a mix of pure-play cloud companies and established tech giants. With 38 holdings, CLOU offers concentrated exposure to key players in the cloud computing sector. Wix.com (WIX) leads with a 5.48% weighting, followed by Box (BOX) at 4.91%. DigitalOcean (DOCN) checks in at 4.79%, while Shopify (SHOP) and Twilio (TWLO) round out the top five at 4.52% and 4.48%, respectively.
The fund's expense ratio stands at 0.68%, which, while higher than broad-market ETFs, is competitive for a specialized sector fund offering targeted exposure to a high-growth area.
The Bottom Line on Data Center ETFs
In a nutshell, the data center industry is experiencing a remarkable boom, driven by the explosive growth of AI and cloud computing. DTCR focuses on data center REITs, providing exposure to the backbone of digital storage and connectivity. SIXG targets connective technologies, capturing the growth of 5G and AI-driven networks. CLOU zeroes in on cloud computing, investing in companies leading the SaaS and IaaS revolution. Each ETF offers a distinct angle on the tech landscape, allowing you to find whichever angle you prefer to tap into the booming data center and digital infrastructure scene.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
