The market for securities backed by various digital infrastructure — including data centers — could grow about 46% by the end of next year to roughly $115 billion, according to Bank of America.
Data centers account for 61% of the current $79 billion market for digital-infrastructure securitizations, according to BofA’s note. Fiber infrastructure makes up another 20% while cell towers are at 18%. The estimates take into account both asset-backed securities and commercial mortgage-backed securities.
Companies have been developing large data centers to help support demand for artificial intelligence, and banks as well as private lenders have been competing to underwrite such deals. Meta Platforms Inc. picked Pacific Investment Management Co. and Blue Owl Capital Inc. to lead a $29 billion deal for its data-center expansion in rural Louisiana. JPMorgan Chase & Co. and Mitsubishi UFJ Financial Group, meanwhile, are leading a loan of more than $22 billion to support Vantage Data Centers’ plan to build a massive data-center campus, Bloomberg reported last week.
Investors’ concerns about the development of data centers, cloud adoption and the path of investment in AI have been assuaged recently after major hyperscalers reported strong earnings, strategists including Chris Flanagan wrote in the note dated Aug. 22. The four big data-center developers in particular — Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc. — disclosed higher cloud business revenues and reiterated plans for capital spending increases, BofA noted.
Risk premiums on all three types of digital infrastructure ABS — data centers, fiber and cell towers — have tightened significantly over the past two years. While BofA strategists expect limited spread tightening going forward, they see such securitizations as offering attractive relative value compared to some other types of ABS. Bloomberg