Artificial intelligence may destroy humanity, and data center opposition could decimate the AI ecosystem, but the Democrats who now control Congress are unlikely to severely impede progress. Even the most vehement protesters are likely to evolve their thinking.
AI is a national security concern, critical to the defense and advancement of America, and that almost certainly protects data centers from punitive legislation. AI also has the power to advance medicine and science and make the world a better place.
It is safe to assume Democrats and Republicans understand that weakening America's AI dominance benefits China and Russia. The respected, nonpartisan Congressional Research Service has explained that since at least 2020.
Despite campaign rodomontade and widespread protests, the new Democrat-controlled Congress will likely develop realistic data center legislation, rather than use its powers to stifle an important technology.
Investors should use current controversies -- and all that will follow -- to build positions that benefit from what will likely be a national data center policy that addresses concerns, including pollution and extreme water and electrical usage, without impeding the AI buildout.
The investor class abhors political challenges, but major innovations need regulatory frameworks that balance public and private good. A lawyer helping a private-equity firm with a South Carolina data center said he didn't understand why they wanted to build near a neighborhood rather than in nearby rural areas. He has a point.
Some states and areas will likely emerge as pro-data center, just as state and federal legislation should ultimately harmonize as controversies mature. Volatility in its many forms -- political, social, and financial -- will define the process and create many investment opportunities.
Even now, many data center stocks are stable, despite so many Prince Hamlet investors who are vacillating between AI's stunning promise and cost. Amazon.com, Meta Platforms, Microsoft, and Alphabet data center spending is either dismissed as the cost of business or as insanity. Still, the AI investment theme is here to stay.
Aggressive investors can consider Equinix. Third-quarter financial results were strong, and the data center company's guidance was robust. Equinix operates 282 data centers in 36 countries. More than 90% of revenue is recurring. The 50 largest customers generated 35% of recurring revenue in the third quarter. Less than 3% of recurring revenue over the past three years came from the largest customer.
While the company is dynamic, Equinix's stock and options trading aren't, and that requires creativity.
For every 100 Equinix shares that are bought, investors can sell a put and buy a call. The put sale pays you to buy more stock at a lower price, while the call increases in value as the stock advances.
Consider puts and calls that expire in one to two months, with strike prices that are within 5% of the stock price.
During the past 52 weeks, Equinix stock has ranged from $720.62 to $1,128.68. Shares are up about 37% this year, far more than the S&P 500 index, a fact that reinforces that data centers are far from dead despite the headlines and campaign rhetoric.
The data center investment is likely to be long-term rewarding but short-term trying, as it will take time for political and local controversies to find reasonable legislative expression.
Recommending data center investments, moreover, expresses a view that investors have overreacted and that wagers against AI and data centers are too pessimistic.
Still, a lot must fall into place. Data center supporters must become as effective as Chinese and Russian propagandists, who are surely using social media and other tools to influence American public opinion and politics.
America must win the AI race. Any other outcome endangers national security and global stability, and that's bad for everyone.