Data Center REITs & Cloud Infrastructure Collaboration: Business Model, Risks, Opportunities

Based on the information I have collected, I will analyze the sustainability of the business model for data center real estate investment and cloud computing infrastructure collaboration, as well as the risks and opportunities for REITs like Fermi in partnering with tech giants.

Data center REITs performed exceptionally well between 2020 and 2024, achieving a total return of 77% with an annualized growth rate of 12% [1]. As of July 2025, the weighted average AFFO multiple for data center REITs was 23x, higher than the 21x average for the entire REIT market [1]. This reflects strong market confidence in data center infrastructure.

The hyperscale data center market is projected to grow from $92.85 billion in 2023 to $204.92 billion in 2028, with a compound annual growth rate (CAGR) of 17.3% [2]. Cloud infrastructure providers are expected to invest nearly $400 billion in capital expenditures in 2025 alone [3], providing a strong demand base for data center REITs.

• Data center REITs primarily rely on long-term leases, typically 5-15 years in duration
• High renewal rates and customer stickiness, with extremely high switching costs
• For example, Equinix has achieved over 22 consecutive years of quarterly revenue growth [4]

• Traditional hyperscale cloud service providers (AWS, Azure, Google Cloud)
• AI and GPU startups
• Enterprise-level inference deployment customers [3]

• AI workloads require more robust cooling systems
• Growing demand for GPU-ready pods and modular expansion [3]
• Strong demand for investments in liquid cooling technology

• Fermi America, co-founded by former Texas Governor and Energy Secretary Rick Perry, plans to develop an 11GW data center and energy campus called “Project Matador” in Carson County, Texas.

• In December 2025, Fermi announced that its first potential tenant had withdrawn from a $150 million construction funding agreement, causing the company’s stock price to plummet 46% in a single day [5]. The tenant, referred to as the “first tenant” in regulatory filings, is an investment-grade rated company.
• The exclusivity period has expired, but the tenant is still discussing potential lease agreements [6]
• Fermi stated it remains on track to achieve initial power delivery in 2026 [6]
• The incident reflects the complexity and uncertainty of large-scale data center projects

• Withdrawal by a single large tenant can have a significant impact on a project
• In the Fermi case, the $150 million withdrawal directly caused a 46% drop in stock price
• Bargaining power is tilted toward large cloud service providers

• Data center construction costs are high, with per-megawatt construction costs projected to grow at an annual rate of 17.3% [2]
• Highly dependent on upfront financing and tenant construction funding
• A rising interest rate environment increases financing costs

• Emerging markets (e.g., Abilene, Louisiana, Oklahoma) have lower costs but relatively underdeveloped infrastructure [1]
• Stability of power supply is a key consideration

• Rapid development of AI technology may lead to changes in data center demand patterns
• The trend of self-built data centers may weaken the market position of REITs

• AI training and inference require significant computing resources
• GPU-intensive workloads drive demand for data center upgrades
• Edge computing and distributed architectures create new market opportunities

• Companies like Fermi adopt a “behind-the-meter” microgrid model [7]
• A mix of natural gas, solar, wind, and nuclear energy sources
• Addresses grid bottlenecks and provides stable power supply

• Industry participants are becoming more selective; for example, Iron Mountain rejected a 130MW lease agreement that did not meet ROI thresholds [3]
• Investment decisions are more rational, avoiding blind expansion

• New customer segments such as AI labs and GPU startups
• Rapid growth in demand for enterprise-level inference deployment
• Customized demand from specific industries (e.g., autonomous driving, biomedicine)

New entrants like Fermi face execution risks. Large cloud service providers (Oracle, Meta, Microsoft, Apple) are starting to invest directly in data centers [1], which may weaken demand for third-party landlords.

As AI applications become more widespread, data center demand will become more diversified. REITs need to enhance their technical capabilities to provide GPU-ready facilities and advanced cooling systems. Energy self-sufficiency will become a competitive advantage.

The global hyperscale data center market is projected to reach $246.62 billion with a CAGR of 19.2% [4]. Business models will become more mature, risk diversification capabilities will improve, and industry consolidation may accelerate.

• Continuously monitor their technical upgrade capabilities and degree of customer diversification
• Focus on evaluating their layout strategies in emerging markets
• Monitor the stability of long-term partnerships with large cloud service providers

• Carefully assess their financing capabilities and project execution risks
• Focus on the uniqueness and cost advantages of their energy solutions
• Monitor customer signing progress and project timelines

The business model for data center real estate investment and cloud computing infrastructure collaboration generally has good sustainability, but faces short-term execution risks and long-term challenges from changes in the competitive landscape. The Fermi case reflects the high-risk, high-reward nature of the industry, while also highlighting the importance of technological innovation and differentiated competitive strategies.

Investors should focus on companies with leading technical advantages, diversified customer bases, and sound financial conditions, while closely monitoring industry technology trends and policy environment changes.

[1] Chilton Capital - “Data Center REITs: Own the Real Estate Behind AI” (https://chiltoncapital.com/2025/08/01/data-center-reits-own-the-real-estate-behind-ai-august-2025/)

[2] The Business Research Company - Hyperscale Data Centers Global Market Report 2024

[3] WisdomTree - “The Real Estate Beneath the Revolution: Why Data Centers Deserve a Closer Look” (https://www.wisdomtree.com/investments/blog/2025/05/15/the-real-estate-beneath-the-revolution-why-data-centers-deserve-a-closer-look)

[4] The Motley Fool - “2 Data Center REITs to Consider in 2025” (https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/reit/data-center-reit/)

[5] Data Center Dynamics - “Fermi share price craters as tenant pulls back from $150m Texas data center deal” (https://www.datacenterdynamics.com/en/news/fermi-share-price-craters-as-tenant-pulls-back-from-150m-texas-data-center-deal/)

[6] LSE - “Fermi loses out on USD150 million advance from possible tenant” (https://www.lse.co.uk/news/fermi-loses-out-on-usd150-million-advance-from-possible-tenant-c3pgd4j4hi7ozym.html)

[7] EnkiAI - “Natural Gas AI Data Centers: ET’s 2025 Power Play” (https://enkiai.com/data-center/natural-gas-ai-data-centers-ets-2025-power-play)