Should the U.S. have attacked Iran?

Others will have to answer that question.

The Wide Moat Daily is an investment letter. We do not, as a general rule, follow geopolitics and global conflict.

At the same time…

The conflict is already impacting markets. Oil prices are about approximately 17% in the past five days. The S&P 500 fell as much as 2.5% on Monday. And defense contractors are catching a bid. RTX (RTX) and Northrop Grumman (NOC) are up 4% and 3.7%, respectively, this week.

More important, the conflict is affecting those on the ground.

As CNBC wrote two days ago, “The conflict has disrupted civilian life, internet access in Iran, flight routes, and energy shipments across the region.”

Meanwhile, drones struck two Amazon Web Services (“AWS”) facilities in the United Arab Emirates this week. Plus, an indirect hit in Bahrain caused damage to one of its data centers there.

These attacks, Amazon (AMZN) noted, have “significantly impaired” its operations in the Middle East. And while it’s hard at work repairing the damage, “Customers are experiencing elevated error rates and degraded availability for services” in the meantime.

This isn’t a simple case of shoppers having to wait another day or two to get their paper towels and phone chargers. Businesses, nonprofits, and government entities of all sizes rely on the tech giant’s data maintenance capabilities.

GE Oil & Gas, the CIA, and NASA are all AWS clients, just to name a few. These entities cannot function optimally – or at all – without specially designed and maintained buildings to protect the electronic information they generate.

So even from a strict investment-only standpoint, the ongoing attack on Iran is proving to be a sober reminder of how this world really runs… on data centers.

Data-Center Growth Is Everywhere

  1. I know I’ve been writing about data centers for months now. But I have two very important reasons for doing so:

  2. I want to make sure you understand how important – and profitable – this real estate segment can be.

  3. There are monthly, weekly, and even sometimes daily updates about data-center developments around the world that can be taken advantage of.

For instance, last Tuesday, Amazon announced its intention to invest $12 billion into building data centers in Louisiana. And then there’s the big news from Blackstone (BX), the world’s largest alternative asset manager (which I detailed last month).

It’s launching a new real estate investment trust (“REIT”) – as soon as this year – that will focus on buying up data centers.

This is hardly the massive manager’s first move into data centers. Recognizing how technological advances simply cannot happen without proper data-storage facilities, Blackstone bought up an entire such REIT in 2021, spending around $10 billion to acquire QTS Realty Trust.

But recognizing how much more space is needed still, it’s doubling down on that bet.

Data Centers Have Come a Long Way

I first began covering data centers back in 2012 when Cincinnati Bell (CBB) was considering spinning off its 23 related properties to form CyrusOne. I initiated coverage on the then-small-cap REIT in 2013, explaining on Seeking Alpha:

Because the Data Storage industry is considered a niche business, there is a smaller pool of potential buyers – especially in the private markets. That means that there are a limited number of assets and that the properties are much less liquid.

At the time, CyrusOne was trading at $22. But it went on to become one of the best-performing REITs of the 2010s, compounding around 21% annually for nearly a decade. That’s equivalent to about 6.9 times growth.

And it might very well have sustained that record if it hadn’t been bought up in March 2022 by KKR and Global Infrastructure Partners (GIP) for $90.50 per share.

Source: Wide Moat Research

The Future Is Bright

Another data-center REIT I recommended last decade was QTS Realty. That was in May 2017, and it went on to generate returns of 67% before being bought up by Blackstone, as I mentioned earlier.

Then there was Iron Mountain (IRM), which I recommended buying for our “Cash Is King” portfolio in May 2020. When we sold it in September 2021, we cleared a 119% return.

All told, data centers have generated best-in-class returns in:

  • 2016: 26.4%

  • 2017: 28.4%

  • 2019: 44.2%

  • 2020: 21.0%

  • 2023: 30.1%

  • 2024: 25.2%

And so far in 2026, they’ve outperformed most other property sectors, gaining 22%. Only farmland REITs are outdoing them at 35.1%, while net-lease and self-storage sit at 17.9% and 17.15%, respectively.

One of today’s most significant data-center REITs, Digital Realty Trust (DLR), is guiding 8% growth on a core funds from operations (“FFO”) per-share basis this year, as favorable supply and demand dynamics generate solid pricing power. It recently reported a new quarterly record for bookings, up 20%, due primarily to AI-driven workloads.

Meanwhile, Equinix (EQIX) grew bookings by around 27% last year, and it’s now guiding for 8% to 10% growth in adjusted FFO (“AFFO”) per share.

In short, despite the gains data centers have already made – and even with current disruptions in the Middle East – Wide Moat Research believes the sector has more to give. Data usage is exploding with these key drivers:

  • Cloud computing (AWS, Microsoft Azure, Google Cloud)

  • Artificial intelligence and machine learning

  • Streaming and social media

  • 5G and edge computing

  • Enterprise digital transformation

Global data traffic has been growing 20%, 30%, or more annually… which requires more servers and therefore more data center capacity. And when demand exceeds supply, operators can raise prices.

This has happened recently in major markets such as:

  • Northern Virginia

  • Frankfurt

  • Singapore

  • Silicon Valley

Some leases are resetting up to 50% higher when renewed.

When the world is at relative peace and everything is functioning properly, most people rarely think about data centers. But when they’re taken offline, we remember just how essential they are to modern life.

“Essential” and “growing” – that’s the recipe for a long-term investment trend.

Regards,

Brad Thomas
Editor, Wide Moat Daily

P.S. I just released a new presentation on the data-center space. A new initiative out of the White House is lighting a fire under this industry. Trump himself is personally involved. And a handful of companies are likely to benefit. To get all the details – and to learn which data-center stocks I’m recommending now – go right here.