There Are Different Ways Data Centers Make Money, and Even Retail Investors Can Invest... The Key Lies in Choosing the Right Investment Method [How to Invest in AIDC]

From Value Chain Stocks to ETFs and REITs
Different Investment Strategies for Building, Operating, and Earning Rental Income
Regional Co-Prosperity REITs Preparing to Share Profits with Local Residents

Amid the artificial intelligence (AI) boom, data centers have emerged as key investment assets, but it is not easy for ordinary retail investors to invest directly in data centers themselves. Due to the nature of development projects, which require hundreds of billions to trillions of won, investing directly in shares of developers or operators, or participating through private equity funds (PEF) or infrastructure funds, remains largely the domain of institutional investors and high-net-worth individuals.

However, this does not mean that individuals are left without any investment options. Choices are rapidly expanding, ranging from listed companies that build, supply power to, and operate data centers to related exchange traded funds (ETFs) and real estate investment trusts (REITs). Still, since each investment product targets different areas and operates under different profit structures, it is important to carefully consider the differences in investment strategies.

From construction to powering, to operations... Even within data centers, sources of revenue differ

The easiest way for individuals to access this sector is to invest in related companies listed on the stock market. As construction firms, power equipment companies, and operators generate revenue at different stages leading up to the development and operation of a data center, the very nature of the investment depends on which company one chooses to buy.

GS E&C’s stock price has soared sharply this year. Including its subsidiaries, the company has the highest record of data center completions among domestic construction firms, making it a key stock that benefits from data center construction. As new data center developments increase, the company secures design and construction orders, and recognizes revenue and profit as projects progress.

In the power infrastructure segment, LS ELECTRIC is representative, while KT and LG Uplus take the lead in operations. LS ELECTRIC supplies the transformers and distribution equipment required for data centers. This approach is more about investing in the construction and capital expenditure (CAPEX) cycle, rather than the rental profits of operating data centers themselves. Besides data centers, positive developments in the overall industry, such as investments in the U.S. power grid and replacement of outdated electrical equipment, have also contributed to the stock’s upward momentum.

KT operates data centers directly through KT Cloud. After a center is completed, KT continuously generates revenue by providing server space, power, network, and cloud services to businesses and cloud operators. The company has set a target to secure 1GW of AI data center capacity over the next five years and to achieve related sales of 4.4 trillion won by 2031. In this model, the investment focus is on increasing the operational rate of data centers, securing customers, and growing long-term operational revenues, rather than on new construction orders.

The catch is that buying these stocks does not mean you are investing solely in the data center business. For KT, telecommunications, shareholder returns, and performance by group affiliates are all reflected in the stock price, while for GS E&C, the housing and nuclear businesses, among others, also play a role. Even if the data center industry grows, poor performance in other business areas of a given company can affect stock performance.

From individual stocks to ETFs and REITs... Retail investors now have more choices

If you want to reduce reliance on individual stocks and diversify investment across the entire data center ecosystem, you can utilize ETFs.

The recently listed "Mighty AI Data Center Value Chain ETF" divides the data center industry into seven areas: design and construction, semiconductors and storage, network, energy and power generation, power and cooling systems, operations, and services. Instead of selecting just one construction firm or operator, this approach allows you to invest in companies involved in every stage of the building and running of data centers. Related ETFs are already traded overseas as well. In the United States, the "Global X Data Center & Digital Infrastructure ETF (DTCR)" is one of the flagship products, having risen by over 30% since the beginning of the year.

Narrowing the investment target one step further leads to REITs. Instead of investing in companies that build or operate data centers, REITs allow you to invest as a "building owner," by holding and operating the physical data center real estate and earning rental income. In the U.S., REITs such as Digital Realty (DLR) and Equinix, which own and operate data centers as core assets, are listed on the market. Domestic investors can access overseas data center REITs through ETFs such as the "RISE Global Data Center REITs."

While options from data center-related stocks to ETFs and REITs have broadened, direct public investment channels allowing individuals to participate in the development, rental, and operating profits of specific data centers in Korea remain limited. Project REITs are gaining attention as a possible solution to fill this gap.

Sharing profits from 'local data centers'... Regional cooperation REITs draw attention

Project REITs are development-type REITs that raise funds from the development stage, build the real estate, and can continue to own and operate the asset even after completion. Unlike conventional project finance vehicles (PFVs), which focus on selling off assets and liquidating after development, project REITs can retain assets for the long term and distribute rental income to investors.

Last month, the Ministry of Land, Infrastructure and Transport pre-announced legislative changes to the Real Estate Investment Company Act aimed at promoting project REITs and expanding eligible investment targets. The revision clarifies that if a REIT holds the shares of a company owning and operating a data center, it is considered as holding actual real estate through the REIT.

Furthermore, introducing a "regional cooperation" approach that combines participation by local residents is also under consideration. The current Real Estate Investment Company Act allows special subscription rights for local residents if necessary for public interest, such as regional development. For residents who may oppose data center construction due to large-scale use of electricity and water or noise concerns, this structure offers investment opportunities in the project, enabling them to share future operational profits through dividends.

Daehwa Sah Kong, partner attorney at HwaWoo Alternative Investment Team, said, "Regional cooperation REITs not only provide compensation for local residents and reduce sources of conflict, but also open up a new pathway for ordinary individuals to invest in AI infrastructure that was previously difficult to access."

This content was produced with the assistance of AI translation services.