As the world becomes more digital, the data centre sector is poised for massive growth, driven by the increasing demand for cloud computing, artificial intelligence (AI), and the storage of ever-expanding data. If you’re considering capitalizing on this, three TSX stocks should be on your radar. These data centre stocks not only have stakes in data centres. These three are uniquely positioned to benefit from the sector’s expansion. Let’s explore why these stocks might make a compelling case for your portfolio.
Granite REIT
Granite Real Estate Investment Trust (TSX:GRT.UN) is already a solid performer with a strong focus on industrial properties, including data centres. As of the most recent quarter, GRT.UN reported solid revenue growth of 7.6% year over year, with a trailing annual dividend yield of 4.3%.
The data centre sector is expected to grow exponentially, and Granite’s exposure to this real estate segment makes it an appealing option. While other sectors may experience slower growth due to rising interest rates and economic uncertainty, the demand for data infrastructure remains robust. GRT.UN’s strong operating margins (78.1%) and its forward-looking price-to-earnings (P/E) ratio of 13.39 suggest it’s well-positioned for the future.
TELUS
TELUS (TSX:T) is not only a telecommunications giant. It’s also a key player in the data centre space through its technology solutions arm. The data centre stock has made significant investments in expanding its cloud and data infrastructure.
Despite some challenges, with quarterly revenue growth slowing by 0.7%, TELUS remains a solid investment due to its diversification and stable cash flows. With a forward dividend yield nearing 7%, investors can benefit from both income and potential growth. As the demand for faster internet and data storage rises, TELUS is uniquely positioned to capitalize on the increasing need for robust data infrastructure.
Hut 8
Hut 8 (TSX:HUT), while primarily a cryptocurrency miner, also operates data centres for high-performance computing, positioning itself for broader opportunities. Its quarterly revenue surged by 71.5% year over year, highlighting the company’s growth potential. Hut 8’s recent strategic moves to diversify beyond cryptocurrency mining into broader data centre services make it an intriguing play in this sector.
While the volatility of cryptocurrency markets can present risks, Hut 8’s focus on data centres gives it an additional revenue stream that could provide stability. With a strong market cap of $1.98 billion and revenue growth on the rise, Hut 8 could be a speculative but rewarding addition to your portfolio.
Key takeaways
The data centre sector is not without its challenges. Rising energy costs and the increasing complexity of technology infrastructure can weigh on margins. TELUS, for instance, has a relatively high debt-to-equity ratio of 171.58%. This could pose risks in a high-interest-rate environment. However, stable cash flow and the ability to generate consistent earnings should help mitigate these concerns. Similarly, Hut 8’s profitability from data centre operations could be impacted by fluctuating electricity prices, but the company’s diversified business model helps spread the risk.
On the financial side, all three companies are performing well, with GRT.UN and TELUS offering consistent dividends. These are attractive to income-focused investors. Granite’s payout ratio of nearly 90% may seem high. Yet, given its reliable revenue streams and strong portfolio, it remains a dependable income generator. TELUS also holds a payout ratio above 280%, though this reflects the telecom giant’s long-term strategy to reward shareholders — all while continuing to invest in growth areas like data infrastructure.
Bottom line
Looking ahead, the growing reliance on digital infrastructure, from AI to cloud computing, suggests that data centres will only become more important. For Granite, the rising demand for industrial real estate for data centre use positions it well for future growth. TELUS’s ongoing investments in 5G, AI, and data centres should yield returns in both growth and income. Meanwhile, Hut 8’s focus on high-performance computing adds an additional layer of opportunity as more companies look for scalable, data-driven solutions.
While each company has its unique strengths and challenges, all three data centre stocks stand to benefit from growth. With a mix of stable dividends, growth potential, and exposure to data-driven technologies, these stocks could be excellent additions to your portfolio.
