The excitement around artificial intelligence (AI) in the investing community remains almost palpable, as market veterans and analysts alike have argued that AI represents the next industrial revolution. Naturally, investors have flooded to the tech stocks at the forefront of this revolution - including ChatGPT patron Microsoft (MSFT), cloud computing heavyweights Google (GOOGL) and Amazon (AMZN), and AI chip specialists like Nvidia (NVDA) and Advanced Micro Devices (AMD), among others.

And then there are real estate investment trusts (REITs). Primarily seen as high-yield investments for regular dividend income, REITs might not be the most obvious pick for investors looking to capitalize on AI growth. However, there's one dividend-paying REIT that just scored an upgrade precisely for its exposure to this fast-growing industry.

About Equinix

Founded in 1998 and based out of California, Equinix (EQIX) is a REIT that provides colocation and interconnection services to a wide range of customers, including enterprises, cloud providers, content providers and financial institutions. With operations in more than 230 data centers in 55 countries, Equinix's data centers are located in key metropolitan areas around the world, providing businesses with direct access to major cloud providers, content delivery networks (CDNs) and financial markets. The company's market cap currently stands at roughly $74.6 billion.

Equinix stock is up 24% on a YTD basis, comfortably outperforming a slightly negative return for the S&P REIT Index(FRI) over the same period. 

AI Drives Data Center Tailwinds

The excitement around AI has resulted in a massive surge in demand for data center operators like Equinix. Acting as the physical embodiment of the digital universe, data centers house the Internet's infrastructure, store cloud computing resources, and power the processing of all digital data. 

Equinix, as a global giant in this industry, is well-positioned to benefit from continued AI growth in the upcoming years. To position itself as a leading provider of AI infrastructure solutions, Equinix has deployed AI service provider solutions tailored to support on-ramps, inference nodes, and small-scale training needs. 

Additionally, Equinix is addressing the growing demand for private AI solutions by providing customers with close proximity to their data and seamless access to public cloud capabilities. Further demonstrating its commitment to the AI space, Equinix is involved in 56 major projects across 39 markets in 23 countries, including 14 xScale builds, representing the company's most advanced data center facilities.

Although tenant diversification remains an issue, with the top 10 tenants accounting for almost 20% of total revenue, the quality of Equinix's top tenants is worth noting, as it includes well-established tech titans like Amazon (AMZN) and Meta Platforms (META). Additionally, EQIX's average lease terms are 18 years, with 70% of leases expiring after 2037.

EQIX Q3 Earnings Top Estimates

In Q3, Equinix's revenues came in at $2.1 billion which denotes a growth of 12% from the previous year. Earnings jumped 27.4% to $2.93 per share, while funds from operations (FFO) - a key metric for REITS - arrived at $8.19 per share, easily topping the consensus estimate. 

Meanwhile, when it comes to future earnings, analysts are expecting the company's earnings to grow by 7.36% in FY 2024. Forward revenue growth is projected at 10%, outpacing the real estate sector median of 7%.

EQIX offers a forward dividend yield of 2.14%, backed by eight consecutive years of growth. The most recent quarterly dividend was $4.26.

AI-Driven Upgrade by Oppenheimer

Recently, Oppenheimer upgraded EQIX to “Outperform” from “Perform” on expectations for AI-fueled upside.

Citing tailwinds from AI, the brokerage stated that "The company's unique, more than 200 interconnection-focused data centers are positively leveraged to secular trends, such as growing demand for digital infrastructure services."

In particular, the brokerage highlighted Equinix's partnership with Microsoft, noting: “Up until now, they were scrambling to figure out the best way to leverage AI in their strategies, but over the last two months, it has become clearer that partnering with Microsoft is the most rapid and secure way to monetize AI, and EQIX is a key supplier.”

Analysts Are Optimistic

Overall, analysts remain optimistic about Equinix stock and have a consensus “Moderate Buy” rating. The mean target price of $839.05 alludes to an upside potential of about 5.6% from current levels while the high target price of $920 denotes an upside potential of about 5% from current levels. 

Out of 21 analysts covering the stock, 14 have a “Strong Buy” rating, one has a “Moderate Buy” rating, and six have a “Hold” rating.