It’s been a little over 30 years since the internet entered the public consciousness, and began changing the way that we approach business, education, work, and entertainment. In that time, we’ve witnessed the dot-com boom and bust, the rise of social media, and, more recently, the explosion of artificial intelligence.
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Backing this fast-growing digital front end is a rapidly expanding infrastructure network – comprising data centers, fiber-optic cables, cell towers, and other essential facilities and hardware that make our digital connections possible.
Covering the digital infrastructure expansion from JMP, analyst Greg Miller writes: “We are in the midst of the largest digital infrastructure spend since the creation of the internet. Over the course of the next five years, we expect well over $1.0 trillion in digital infrastructure spending that will become the backbone of AI, cloud, and edge compute, and likely a wide variety of other applications we have yet to conceive.”
“We believe we are in the early stages of elevated digital infrastructure spending for the next several years that will likely lead to positive estimate revisions, as well as multiple expansion for the stocks in the digital infrastructure universe,” the analyst added.
With that in mind, Miller highlights several digital infrastructure stocks that could see double-digit gains. Using the TipRanks database, we’ve looked up the details on two of these picks – both rated as Strong Buys by the Street. Let’s dive in.
DigitalBridge Group(DBRG)
The first stock we’ll look at is DigitalBridge. Over the past several years, this company has transformed itself from a REIT with a collection of real estate assets related to digital networking into a C-corp, focusing on investing shareholder and partner money into the digital world. Today, DigitalBridge is a global investment firm and asset manager, investing in digital infrastructure firms and taking both ownership and operational positions in its investment targets. DigitalBridge’s investment activity is organized across five verticals that are essential to the digital economic expansion: cell towers, data centers, edge infrastructure, fiber networks, and small cells.
The company is based in Boca Raton, Florida—but its business footprint is global. DigitalBridge has offices in key locations around the world, including New York and Los Angeles in the US, along with London and Singapore overseas. The company has $88 billion in assets under management, and its portfolio contains investments in 45 digital infrastructure companies.
DigitalBridge last reported financial results for 3Q24, and in that quarter, the company missed expectations on revenues. The top line came to $76 million, some $23.15 million below the forecast. At the bottom line, the company realized 6 cents per share in distributable earnings, a nickel per share better than had been anticipated.
In his coverage of DigitalBridge, JMP’s Greg Miller notes that the company’s shift of its business model was not as smooth as had been planned at the outset, but also that, with the shift in the background now, the company is on track to realize gains going forward. He writes, “Despite the rocky start that involved a longer transition and different form than what we had originally anticipated, further compounded by the fact that fee-related earnings targets will take longer to achieve, we believe 2025 will represent a breakout year for Digital Bridge… While the stock has underperformed the broader market since new management has taken over, we believe the company has in fact reorganized the building blocks of a previously troubled company that will produce results that translate to an outperformance in the stock.”
Miller’s comments back up his Outperform (i.e., Buy) rating on DBRG, while his price target of $16 implies a one-year upside potential of 53%. (To view Miller’s track record, click here)
The 10 recent analyst reviews on record for DigitalBridge split 9 to 1 in favor of Buy over Hold, giving the stock its Strong Buy consensus rating. The shares are priced at $10.46 and their $16.70 average price target, slightly more bullish than the JMP view, suggests that the stock will gain 59.5% in the next 12 months. (See DBRG stock forecast)
Equinix(EQIX)
Equinix, the next stock on our list, is a global leader in the market for colocation data centers. These are data centers with rack space and server facilities available for rent – allowing tenants access to large-scale, high-end data center infrastructure without needing to maintain the hardware themselves. Equinix operates as a real estate investment trust, or REIT, owning and managing a portfolio of data centers around the world and leasing out space to its clients.
Data centers are big business, fueled by the AI boom, the expansion of cloud computing, and increasing demand for high-speed computing – and Equinix is right there in the middle of it. The company’s global footprint includes data center properties across the Americas, in Europe, East Asia, Australia, India, the Middle East, and Africa. In all, Equinix has more than 260 data centers in 73 of the world’s major urban areas.
The company boasts that it can offer its customers secure and scalable data center services, and customers are taking the firm up on that. Equinix has more than 10,000 customers leasing space in its facilities, including well over 300 of the Fortune 500 companies.
On the financial front, Equinix’ 3Q24 results were dissapointing. The top-line revenue figure of $2.2 billion was up almost 7% year-over-year – but missed the forecast by $10 million. The quarterly funds from operations (FFO, a key metric for REITs) came to $6.36 per share, up 39 cents from the year-ago quarter – but missing the forecast by 9 cents. At the same time, however, the company’s earnings headline boasted of 87 consecutive quarters of revenue growth.
Checking in with Miller at JMP, we find the analyst focused on that last point – the extended period of revenue growth – as the base for his upbeat take on the stock. He says of Equinix, “There are very few names we have covered over the decades that have driven double-digit revenue growth for well over a decade after many viewed the business as maturing. With a resurgence in activity levels of companies again pulling selective applications from public cloud solutions, we expect demand to continue. While most of the AI-related deployments have been focused on machine learning, with less of a need for super low latency, we believe the next wave of AI deployments will increasingly focus on data centers like that of Equinix for that very reason.”
Miller rates EQIX shares as Outperform (i.e., Buy), and he gives the stock a price target of $1,200 to show its potential for a 32% share price increase in the coming year.
Equinix has picked up 22 recent Wall Street reviews, including 18 rated as Buy and 4 rated as Hold, for that coveted Strong Buy consensus. The shares are currently priced at $906.81; their $1,027.90 average target price indicates that the stock has room to grow 13% by this time next year. (See EQIX stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
