7 Large Cap Dividend Stocks Powering the AI-Data Center Revolution

Many of our readers are looking for avenues to take advantage of the AI revolution, but are somewhat restricted by the high prices of many of the stocks that are the most prominent players in the arena. One outstanding avenue for investors with more limited purse strings and somewhat lower risk tolerance is to look at the data center sector and other technology and utility stocks that are also part of the new revolution that is in many ways changing standards that have been in place for decades.

While transforming some of the biggest data center companies to full-scale AI data centers is still a work in progress, you can bet that customers’ demand for AI applications in gigantic server farms will only grow exponentially. AI data centers typically consist of high-performance servers, storage systems, networking infrastructure, and specialized hardware accelerators. In addition to the actual data centers themselves, certain utility stocks, technology, and energy infrastructure companies are powering ahead. They are finding innovative ways to capitalize on the quantum leap in innovation and technology. 

We screened our 24/7 Wall St. data center research universe, looking for the biggest and best companies in the industry, and found seven that investors should look at now. With almost every industry looking for new AI functionality that can streamline processes and improve results, data centers are uniquely positioned to provide and benefit from AI applications. All seven of these top companies have a Buy rating from top firms on Wall Street. 

Why do we cover dividend stocks?

Dividend stocks offer investors a reliable source of passive income. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.

Data Centers

Data center REITs are arguably the purest play for AI infrastructure with substantial dividends, as they must pay a minimum of 90% of taxable income in the form of shareholder dividends each year.

Digital Realty Trust

Digital Realty owns, operates, and invests in carrier-neutral data centers across the world. An industry leader and probably the best pure-play for AI exposure, Digital Realty Trust, Inc. (NYSE: DLR) pays a hefty dividend. The company is a real estate investment trust that owns, acquires, develops, and operates data centers through its operating partnership subsidiary, Digital Realty Trust, L.P.

Digital Realty Trust is focused on providing data center, colocation, and interconnection solutions for domestic and international customers across a variety of industry verticals, ranging from cloud and information technology services, communications, and social networking to financial services, manufacturing, energy, healthcare, and consumer products.

Its portfolio consists of over 308 data centers, of which:

• 121 are located in the United States
• 112 are located in Europe
• 36 are located in Latin America
• 16 are located in Africa
• 16 are located in Asia
• Six are located in Australia
• Three are located in Canada

PlatformDIGITAL is a global data center platform for scaling digital business, enabling customers to deploy their critical infrastructure with an international data center provider.

Raymond James has a Buy rating with a $205 target price.

Equinix

While priced higher than the other stocks in the sector, this industry giant still offers significant upside and a solid dividend. Equinix Inc. (NASDAQ: EQIX)  is the world’s self-described digital infrastructure company, and last year, former Google Cloud executive Adrian Fox-Martin became the firm’s CEO. Ms. Fox-Martin has more than 25 years of experience in the technology sector and has held senior positions at companies such as Oracle and SAP.

Digital leaders harness Equinix’s trusted platform to bring together and interconnect foundational infrastructure at software speed. Equinix enables organizations to access all the right places, partners, and possibilities to scale with agility, speed the launch of digital services, deliver world-class experiences, and multiply their value while supporting their sustainability goals.

The company offers Dell PowerStore on Equinix Metal, a new, enterprise-grade Storage as a Service (STaaS) solution. Dell PowerStore on Equinix Metal with flexible configurations can help enterprises manage a wide range of high-performance multicloud workloads through low-latency connectivity with proximity to major public clouds.

Truist Financial has a Buy rating with a $961 target.

Utility Stocks

AI data centers have massive power requirements, making utilities key beneficiaries. Two Dividend-paying stocks are considered among the best-positioned for rising electricity demand.

Entergy

This top provider is an energy company engaged primarily in electric power production and retail distribution operations in the Deep South of the United States. This top utility stock always makes sense for conservative investors and pays a reliable dividend. Together with its subsidiaries, Entergy Corporation (NYSE: ETR) produces and distributes electricity in the United States.

 It operates in two segments,

• Utility 
• Entergy Wholesale Commodities. 

The Utility segment generates, transmits, distributes, and sells electric power in portions of:

• Arkansas,
• Louisiana,
• Mississippi, and
• Texas
• City of New Orleans

The company also distributes natural gas. 

The Entergy Wholesale Commodities segment is involved in:

• The ownership, operation, and decommissioning of nuclear power plants located in the northern United States
• Sale of electric power to wholesale customers
• Provision of services to other nuclear power plant owners
• Ownership of interests in non-nuclear power plants that sell electric power to wholesale customers

The company generates electricity from various sources, including gas, nuclear, coal, hydro, and solar. It sells energy to retail power providers, utilities, electric power co-operatives, power trading organizations, and other power generation companies. 

Its power plants have approximately 24,000 megawatts (MW) of electric generating capacity, which includes 5,000 MW of nuclear power.

The company delivers electricity to 3 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. 

KeyCorp has an Overweight rating and has set a $96 target.

Southern Company

Southern Company (NYSE: SO) is a leading energy company that serves almost 9 million customers through its subsidiaries. This large-cap utility leader pays a solid dividend and offers considerable total return potential. Southern Company (NYSE: SO) generates, transmits, and distributes electricity through its subsidiaries.

It operates through three segments:

• Gas Distribution Operations
• Gas Pipeline Investment
• Gas Marketing Services

The company also develops, constructs, acquires, owns, and manages power generation assets, including renewable energy projects, and sells electricity in the wholesale market; and distributes natural gas in Illinois, Georgia, Virginia, and Tennessee, as well as provides gas marketing services, gas distribution operations, and gas pipeline investment operations.

Southern Company serves approximately 8.8 million electric and gas utility customers and offers digital wireless communications and fiber optics services.

BMO Capital Markets has an Outperform rating with a price target for the shares set at $102.

Technology Infrastructure Companies

Several established tech companies offer AI exposure with solid dividends. These are outstanding ideas for more risk-averse growth and income investors.

Cisco

Cisco develops, manufactures, and sells networking hardware, software, telecommunications equipment, and other high-technology services and products. This legacy technology giant is close to reaching a 52-week high and offers a solid dividend. Cisco Systems, Inc. (NASDAQ: CSCO) designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry, seeking a center switching.

• Enterprise routing portfolio interconnects public and private wireline and mobile networks, delivering highly secure and reliable connectivity to campus, data center, and branch networks
• Wireless products include wireless access points and controllers
• Compute portfolio including the Cisco unified computing system, hyperflex, and software management capabilities, which combine computing, networking, and storage infrastructure management and virtualization

In addition, it provides Internet for future products consisting of:

• Routed optical networking
• 5G
• Silicon and optics solutions
• Collaboration products, such as meetings, collaboration devices, calling, contact centers, and communication platforms as a service
• End-to-end security product consists of network security, cloud security, security endpoints, unified threat management, and zero trust
• Optimized application experience products, including full-stack observability and network assurance

Further, the company offers a range of services and support options for its customers, including technical support, advanced services, and advisory services. It serves businesses of various sizes, public institutions, governments, and service providers.

Bank of America has a Buy rating for the stock with a $85 target.

International Business Machines

International Business Machines, nicknamed Big Blue, is an American multinational technology company. The legacy blue-chip tech giant offers conservative investors a safer way to play the sector. International Business Machines Corporation (NYSE: IBM) and its subsidiaries provide integrated solutions and services worldwide.

The company operates through four segments:

• Software
• Consulting
• Infrastructure
• Financing

The Software segment offers a hybrid cloud and AI platform that enables clients to realize their digital and AI transformations across their applications, data, and environments. IBM has partnered with Amazon Web Services (AWS) to allow users to access Watson X AI features and its data platform. IBM also partnered with Palo Alto Networks, allowing the cybersecurity company to acquire IBM’s QRadar Software as a Service (SaaS) assets. IBM’s third-quarter sales related to generative AI rose by over $1 billion from the second quarter.

The Consulting segment focuses on integrating skills across strategy, experience, technology, and operations by domain and industry.

The Infrastructure segment provides on-premises and cloud-based server and storage solutions and life-cycle services for hybrid cloud infrastructure deployment.

The Financing segment offers client and commercial financing that facilitates IBM clients’ acquisition of hardware, software, and services.

The company has a strategic partnership with various companies, including:

• Hyperscalers
• Service providers
• Global system integrators
• Software and hardware vendors that include Adobe, Amazon Web Services, Microsoft, Oracle, Salesforce, Samsung Electronics, SAP, and others

 Bank of America has a Buy rating with a recently raise $310 target price.

Energy Infrastructure

Natural gas companies are benefiting from increased power demand, and one of North America’s largest energy infrastructure companies remains a favorite among Wall Street, paying a solid and dependable dividend.

Kinder Morgan

Kinder Morgan is one of North America’s largest energy infrastructure companies. This is one of the top energy stocks and remains a favorite among Wall Street, paying a solid and dependable dividend. Kinder Morgan, Inc. (NYSE: KMI) is an energy infrastructure company in North America.

The company operates through  four segments:

• Natural Gas
• Products
• Terminals
• CO2

The Natural Gas Pipelines segment:

• Owns and operates the interstate and intrastate natural gas pipeline and underground storage systems
• Natural gas gathering systems and natural gas processing and treating facilities
• Natural gas liquids fractionation facilities and transportation systems
• Liquefied natural gas liquefaction and storage facilities

The Products Pipelines segment owns and operates refined petroleum products, crude oil, and condensate pipelines, associated product terminals, and petroleum OKE pipeline transmission facilities.

The Terminals segment owns and operates liquids and bulk terminals that store and handle various commodities, including:

• Gasoline
• Diesel fuel
• Chemicals
• Ethanol
• Metals
• Petroleum coke
• Owns tankers

Lastly, the CO2 segment produces, transports, and markets CO2 to recover and produce crude oil from mature oil fields. It owns interests in/or operates oil fields, gasoline processing plants, and a natural oil pipeline system in West Texas. It holds and runs approximately 83,000 miles of pipelines and 144 terminals.

Wells Fargo has an Overweight rating to go with a $34 target price objective.

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