Mizuho sees upside for data center REITs amid state pushback

Investing.com -- Mizuho maintains Outperform ratings on Equinix (NASDAQ: EQIX) with a $1,275 price target and Digital Realty (NYSE: DLR) with a $223 price target, representing potential gains of 22% and 20% respectively from current levels, as communities across the United States push back against data center construction.

New York stands as the only state with a full statewide moratorium on data centers, according to Mizuho. The firm notes that nine states have pending moratoriums on new data center development, while more than 20 states have some form of restrictive data center legislation either pending or approved.

States currently in focus include New York, Pennsylvania, Texas, Illinois, and Ohio.

Community and state-level opposition to data center construction has grown in recent months, driven by concerns about electricity and water consumption needed to operate and cool the facilities. Local communities worry that powering these facilities will increase electricity costs for households.

Additional concerns include environmental impacts such as noise pollution from cooling fans and backup generators, increased traffic, and local air pollution. Communities also point to the contrast between temporary construction jobs and relatively low permanent operational employment at data centers.

The pushback has resulted in various actions including complete enacted moratoriums, moratoriums in the approval process, higher approval requirements, requirements for developers to bear grid infrastructure costs, and limitations on tax incentives.

Mizuho states that most actions remain at the metropolitan and municipal level. The firm notes the situation continues to develop, with multiple ongoing actions at local levels.

The firm's preliminary view suggests that under-construction projects already have entitlements and grid connections, though land banks could face some risk.

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