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Investing.com -- JMP Securities initiated coverage on digital infrastructure companies on AI related spending boom.
Over the next five years, over $1 trillion in investments is expected, driven by AI, cloud computing, and edge computing, with potential for applications yet to be conceived. This spending surge, fueled by hyperscalers and emerging players, is expected to lead to positive estimate revisions and multiple expansions across the sector.
JMP started with “Market Outperform” rating on Digital Realty (NYSE:DLR), Equinix (NASDAQ:EQIX), GDS Holdings (NASDAQ:GDS), American Tower (NYSE:AMT), Crown Castle (NYSE:CCI), SBA Communications (NASDAQ:SBAC), given robust demand, constrained supply, and favorable dynamics for these companies.
Leverage ratios, while potentially high, are backed by long-term contracts with creditworthy hyperscalers like Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), and Meta Platforms (NASDAQ:META).
Data centers are set to capture significant investor interest, benefiting from robust demand for AI and compute infrastructure. JMP predicts a shift from AI learning to inference deployments, slightly accelerating revenue growth. While near-term margin improvements may be limited, the firm foresees sustainably higher EBITDA margins and improved free cash flow over time.
Tower companies, though past peak domestic spending, are expected to see steady growth, driven by international expansion and U.S. densification as 5G adoption increases. However, higher AFFO/share growth remains challenged by elevated interest rates.
Fiber networks, long underinvested, are experiencing a resurgence as demand for connectivity grows. Meanwhile, data center fundamentals are stronger than ever, with pre-leased spaces and immediate power consumption becoming the norm. Despite this, JMP believes equity investors have yet to fully appreciate the sector’s potential.
