Equinix (EQIX) and Digital Realty Trust (DLR) are set to benefit from strong industry growth drivers, including rising AI inference activity and continued enterprise migration to hybrid multi-cloud environments, Morgan Stanley said in a note Thursday.

Both data center operators are expected to see long-term support from rising artificial intelligence inference activity as well as trends such as digital transformation, enterprise migration to hybrid multi-cloud environments, and global data growth, the brokerage said.

Morgan Stanley noted, however, that monetizing each operator's present development pipeline will be critical to equity performance, though both companies appear to have strong access to power availability.

The investment firm acknowledged that the "substantial capital committed to building out global data center capacity creates risk of long-term over-supply," but added that "near-term demand signals remain strong."

Morgan Stanley started coverage of Equinix with an overweight rating and $950 price target, reflecting confidence in its long-term guidance, network effects, and potential for multiple re-rating as demand strengthens. It initiated coverage of Digital Realty with an equal-weight rating and $195 price target.

The brokerage said Digital Realty's equal-weight rating indicates its "more conservative forecast" compared with Street estimates due to "lower visibility into commencement timing and quarterly AI bookings."

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