In data centers, the most interesting areas currently are in:
- Software. In particular, Amazon has been a pioneer in creating value-added software that helps software companies quickly setup databases and servers and backup storage. Google, Microsoft, and IBM/SoftLayer are doing somewhat similar things. The problem is that the data center segments of these companies likely will not move the needle much.
- IT services. Rackspace in particular is doing very interesting things.
The least interesting areas are companies that are mainly involved in selling space in a building because that business is a commodity. Those companies will not make a lot of money and they will not lose a lot of money. While I think a lot of the data center REITs are overvalued and are suckering institutional investors into overpaying for their stock, they are not compelling shorts because they aren’t losing money quickly. As well, many (legitimate) data center companies have been taken over at large premiums by companies like Verizon and Cogeco Cable at valuations I would disagree with.
*Disclosure: No positions.