The Best ETF for AI Infrastructure Investors Right Now

When it comes to investing along the lines of artificial intelligence (AI), many market participants rattle off Nvidia, Microsoft, and other revered megacap technology stocks as primary AI avenues. That makes sense because, after all, AI is deeply rooted in technology.

Often lost in the shuffle are the roles that real estate investment trusts (REITs) can play in delivering or enhancing AI exposure within portfolios. To be sure, the glossing over of the AI/real estate intersection is an odd phenomenon when considering the buzz generated by data center spending. Fortunately that theme is easily accessible via the Global X Data Center & Digital Infrastructure ETF (DTCR 1.06%).

Think of this exchange-traded fund (ETF) as essentially splitting the difference between AI’s tech roots and the real estate portion of the infrastructure equation. It allocates 51.8% of its portfolio to tech stocks — far less than what’s seen in traditional AI ETFs — and 45.2% to REITs, well in excess of what’s found with this category’s old guard offerings.

Drilling down on the data center opportunity set

Earlier this month, when making the case for this Global X ETF, one of my Fool.com colleagues rightly pointed out two important factors. First, the AI funds with which so many investors are familiar don’t adequately address the data center opportunity set. Second, hyperscalers are poised to exponentially increase data center spending in the coming years.

The latter point underscores why by some estimates, global data center revenue is poised to rise 50% to $624 billion in 2029 from $416 billion last year. The thing is, data center revenue accrues most directly to the owners of those properties, such as Equinix and Digital Realty Trust. Those two stocks are largely absent from or underrepresented in standard AI funds, but they combine for 21.35% of the data center ETF’s roster.

There’s more evidence that this five-year-old $618 million ETF is at the right place at the right time. In 2024, global data center spending surged 51% year over year to $455 billion. Those expenditures have paid dividends, literally, to investors holding the Global X ETF. Year to date, the fund is up about 27%, acting more like a tech ETF, while the largest real estate ETF is higher by just 3.6%.

Admittedly, that’s a backward-looking statistic, but the outlook is still bright for this ETF. Consider the following. Last Friday, Alphabet said it will spend $40 billion on Texas-based data centers. JPMorgan Chase estimates global data center expenditures could reach a cool $5 trillion over the next five years.

For this ETF, scarcity is a difference-maker

Admittedly, it’s a bit of a stretch, but another way to look at the data center ETF is as a diamond. Diamonds are expensive due in large part to scarcity and that principle is applicable to data center REITs. Said another way, there aren’t many of these properties and bringing new ones online requires a year to 18 months.

That timeline gets into another important principle that investors evaluating this ETF need to consider: vacancy rates. U.S. data center vacancy rates have done nothing but decline for the better part of a decade.

That’s huge for the landlords dotting the Global X ETF’s lineup because it means they’re not struggling to fill empty space. If anything, the implication is that many of the fund’s real estate holdings don’t have much room at all at their respective inns — a scenario that’s music to the ears of property owners and their investors.

That scarcity implies pricing power, meaning that in the data center space, it’s great to be a landlord because they’re negotiating rental agreements, which by the way span 10 years or more, from positions of strength.