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Digital Realty Is Our New Favorite Data Center

It's the first one we'd look to in another market sell-off.

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March brought a shakeup to the data center industry, and it wasn’t caused by the economic shutdown that resulted from the COVID-19 pandemic. Rather, the new dynamic was brought on by the completion of Digital Realty’s (DLR) acquisition of Interxion.

We’ve considered the effect that the pandemic will have on data centers, and we’ve determined that the answer is: not much. While data centers won’t be immune to some of the problems and inconveniences that come with the shutdown--such as tenants whose businesses may fall apart in the current economy or delays in bringing additional capacity on line--we expect the impact on our fair value estimates from those factors will be minimal. Additionally, greater data center needs of major tenants that are now accommodating workforces that largely work from home and communicate electronically should ultimately offset these headwinds. Data centers’ biggest customers tend to be cloud providers, other hyperscale customers (such as media and social media companies), and network service providers, and we expect all those customers to see increased activity on their platforms and over their networks in this environment. The expansion of their data center presence thus may need to be accelerated, though we see that as a longer-term move rather than something that will affect 2020 results.

Matthew Dolgin does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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