Artificial intelligence (AI) stocks are currently navigating turbulent waters. Last week, news that China’s DeepSeek made significant AI advances at a low price point and with outdated technology prompted a sell-off by U.S. technology stocks.
Then there’s the ever-present talk that President Trump could unveil a new round of trade tariffs against China. That could be problematic for some U.S.-based AI enablers. Those are headwinds, to be sure. But the prevailing wisdom appears to be two-pronged. One is that U.S. tech firms will be responsive to competitive threats. The other is demand for data centers will not abate.
Real estate ETFs like the ALPS Active REIT ETF (REIT) could be ideal avenues for investors looking to remain engaged with AI in indirect fashion. Actively managed, REIT is home to some data center real estate investment trusts (REITs) tethered to the AI boom.
Assessing DeepSeek Implications on Data Centers
Currently, the extent to which DeepSeek’s purported success will affect U.S. data centers, if at all, isn’t clear. However, the prevailing wisdom holds that domestic AI companies will ratchet up their efforts. That could potentially stoked already-elevated demand for data centers.
“DeepSeek’s potential breakthrough in AI economics could have credit implications for hyperscale data center landlords and developers.” noted Moody’s Investors Service. The two U.S.-based data center landlords Digital Realty Trust, L.P. (Baa2 stable) and Equinix, Inc. (Baa2 stable) have diverse portfolio mixes and proven track records that position them well to manage potential volatility in demand from new technologies.”
Equinix is REIT’s largest holding at a weight of 9.46%. Add in Digital Realty Trust, and the two stocks combine for nearly 13% of the ETF’s portfolio.
As noted above, REIT is actively managed. That means it can adjust or expand exposure to data center REITs as new opportunities present themselves. That’s an advantage not found with basic passive real estate ETFs. The data center market is expected to follow a bullish trajectory over the next several years. So REIT could be a winner for real estate investors.
“Data center demand has benefited from increasing data creation and migration to the cloud, as reflected in our growth forecast for global data center power usage,” concluded Moody’s. “Over the next two to three years, the extended timelines required to construct data centers and various resource constraints will help sustain leasing activity. The emergence of new use cases enabled by more affordable and efficient data processing frameworks such as DeepSeek’s would create new opportunities for co-location data centers, such as some real estate investment trust (REIT) properties located near population centers.”
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