Wall Street is pitching data centers as a major real estate bet, but the risks are piling up. While Blackstone's Digital Infrastructure Trust trades on the NYSE, its shares have fallen roughly 16% since their mid-May debut, closing under $17 on Thursday. This decline occurs as the fund has not yet deployed any capital into investments, a stark contrast to competitors like Blue Owl, which owns over 130 data centers representing more than $18 billion in assets.
Blackstone CEO Nick Pell described the strategy in a May CNBC interview as a way to capture the market for stabilized data centers, calling it the lowest risk way to play. The company focused on mature markets like Northern Virginia and Dallas, where data centers predate the current AI boom. Pell told investors on an earnings call that the total addressable market is expected to eclipse $1 trillion over the next several years. However, the broader REIT sector has seen many investments sell off since August, following a period of bond market stress that typically makes real estate volatile due to higher lending costs.
A significant headwind is political backlash. Gallup polling found that 70% of Americans oppose a data center being built in their area, a sentiment that is bipartisan according to a New York Times and Siena poll. New York passed a moratorium on new hyperscale data center approvals in July, and Texas followed in August. In Texas, Gov. Greg Abbott ordered a halt on new approvals after previously calling the state the AI epicenter. For investors, this creates uncertainty about whether local politics will derail projects already baked into return assumptions.
Market volatility linked to the AI trade is also impacting related stocks. Oracle's stock fell 4% in late September after the company sent a force majeure notice tied to Project Jupiter in New Mexico. Oracle is seeking to delay payment if the project is not operational by 2028, citing regulatory hurdles and local opposition, though it claims the project remains on track. Similarly, an Nvidia and Blackstone-backed Australian data center company pulled its planned IPO due to underwhelming investor interest. On Thursday, many AI-themed stocks sank after reports indicated an OpenAI revenue forecast was close to $20 billion below a prior projection.
Experts warn that the sector is highly capital intensive and dependent on reliable electricity and cooling systems. Sabur Mollah, a finance professor at Gettysburg College, noted that while long-term lease agreements can generate stable rental income, risks include overvaluation driven by AI enthusiasm and dependence on a limited number of major technology tenants. Insurance professionals at IMA added that natural disasters and uptime failures pose non-market dangers, though they remain believers in the space due to robust insurance underwriting. Patrick Datz of IMA noted that data centers are typically insured for $3 to $5 billion.
Retail access remains limited; roughly 94% of ownership in Blackstone's REIT is institutional. However, Securities and Exchange Commission Chair Paul Atkins recently proposed increasing retail access to private investments. Andrew Tarver of InvestCloud cautioned that these infrastructure funds were built for large institutional commitments, not millions of retail investors. He described the current system as a post office model designed for slower transactions rather than continuous retail activity. Investors are advised to understand redemption windows and liquidity limits before entering this asset class.