In 1999, the modern S&P 500 was born.
That was the year that Standard & Poor’s and MSCI introduced the Global Industry Classification Standard ("GICS"). This formed the basis for the S&P 500 sectors that we know today. And while GICS has changed over the years (real estate was spun out of financials in 2016, for instance), 1999 was important for one reason.
That was the year that the S&P 500 formally recognized a new industry – information technology. Prior to that, businesses were informally known as “technology companies,” but there was no formal “technology sector.”
1999 was the moment, for most investors at least, that technology was recognized as a real, distinct industry deserving of its own classification. But, today, I’d argue even that framework is obsolete.
That’s because technology isn’t a single, distinct industry. In some real sense, every public company is a technology company. And if you don’t believe me, ask yourself this: How many decently sized companies don’t have a website? How many don’t utilize software to manage orders, customer accounts, or inventory?
The answer is probably few… if any.
Even in the brick-and-mortar real estate space, technology and data are driving growth and streamlining operations. Now, with the emergence of AI, several REITs are adopting the technology into their business.
And while most investors are trying to guess which AI model will ultimately take market share, I’m more interested in the discounted REITs using AI to drive future growth.
Here are a few I’m keeping an eye on…
The REIT That Beat Nvidia Last Year
What if I told you that a humble health care REIT outperformed the mighty Nvidia (NVDA) last year?
Seems unlikely. But with a 2025 total return of 51%, Welltower (WELL) did in fact outpace Nvidia’s 34.8%.
Welltower is a beneficiary of the “Silver Tsunami,” the ongoing movement of Baby Boomers becoming senior citizens with increasing medical needs.
But that demographic shift isn’t the only factor Welltower has going for it. As I explained in a recent article, this health care REIT “stands out for its technological advancements,” too, “where its software has helped it become an employer, partner, and investor of choice.”
Specifically, Welltower launched the Welltower Business System (“WBS”) in an effort to create a modern digital experience for senior living residents, their families, and site-level employees. CEO Shankh Mitra explained in the REIT’s latest annual report how:
The creation and successful deployment of our data science platform over the past decade – well before machine learning and AI entered mainstream vernacular – didn’t occur by happenstance or without significant challenges. It required a massive shift in the mindset of the entire organization to embrace a data-driven and fact-based approach to investing as opposed to the “gut-feel” and “deal-shop” mentality which had been pervasive at the company for decades (and is still generally the case for most real estate entities).
Welltower’s platform was initially powered by machine learning… then deep learning… and now by AI.
Its training set consists of operating and financial data collected from over 100 senior housing facilities over the past 15 years. That’s a big advantage; one a competitor can’t replicate.
And that, in turn, gives it superior operating results, which translate to shareholder returns that have been nothing short of exceptional.
Public Storage Crushes the Omnichannel Option
Another REIT that enjoys a wide-moat AI edge is Public Storage (PSA).
I wrote about this company recently, too, in my self-storage article last week. There, I said I was “very bullish,” due in large part to Public Storage’s business model.
A recent article from AInvest lays out the case:
The self-storage sector, long characterized by its resilience and steady demand, is entering a new era of technological disruption. At the forefront of this transformation is Public Storage.
[… ]
Public Storage’s adoption of AI technologies has directly enhanced its operational margins, a critical factor in a sector where thin profit margins often dictate competitive advantage. By automating administrative tasks such as invoicing, customer inquiries, and payment processing, the company has reduced overhead costs while reallocating human capital to high-value strategic initiatives[.]
It’s not just AI. The company has built out a digital ecosystem that has become a critical element of Public Storage’s operating model. CEO Joe Russell explained in a recent earnings call:
Real-time data, which provide insight into how and when customers use our properties, and cross-platform cohesion are enabling a shift to optimized staffing based on the timing of customer needs. Our expert team of over 5,000 property personnel now have more tools to support customers when and where they need us on a 24/7 basis instead of being constrained to a traditional property office for nine business hours each day.
That works out well for everyone involved, including its investor base.
Prologis Makes a More Direct Play on the AI Movement
Prologis (PLD) is a leading industrial REIT with over 5,900 locations in about 20 countries.
To be clear, Prologis isn’t the only warehouse landlord that’s utilizing AI to enhance customer experience and operations management. Nor is it the only one automatically benefiting from it.
The growth of data centers and AI over the past five years has translated to new real estate requirements that mean more business for the industrial industry. Maintenance equipment, server racks, and related assets must be stored locally, and warehouses are an obvious solution for those needs.
Meanwhile, large-scale developments compete for land, lifting the value of modern, well-located industrial products. And that creates new, secular, competitive moats and even better valuations for these property owners.
Of course, there are still winners and losers in the industrial landlord game. But Prologis is an obvious front-runner.
In 2021, it began actively partnering with data-center developer Skybox Datacenters to convert industrial land into powered shells and data facilities in key U.S. markets. Then, in 2023, it announced additional data-center plans, including a dedicated data-center development arm with substantial capital commitments.
This signaled a pivot from opportunistic projects to a core strategic business unit. And understandably so, when the underlying economics for data-center investments are so compelling.
Development yields for warehouses range from 6% to 7%; for data centers, they’re 7.5% to 10%. So it’s easy to understand why Prologis now has around $1 billion of data centers under development.
I don’t think it has any intention of changing altogether. Its warehouse portfolio has done too well for far too long, with more promising gains going forward.
It’s just that Prologis recognizes the value of utilizing AI on multiple fronts. And its investors aren’t complaining as it does.
Regards,
Brad Thomas
Editor, Wide Moat Daily
PS: There’s one more property sector I didn’t mention today. It’s also benefiting from the rollout of AI. In fact, it’s essential to it. And because of recent actions from the White House, a fire has been lit under this sector… and could provide a springboard for a handful of stocks. Get the full story right here.
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