Possible $40B IPO Could Mark Data Center Shift Toward Wall Street

A potential initial public offering from data center firm Switch may mark the start of a shift back toward Wall Street that some industry leaders believe is inevitable. 

Switch’s owners are considering returning the Las Vegas-based data center operator to public markets with an initial public offering that would value the company around $40B, Reuters reported earlier this month. 

It would be the first IPO of a major data center firm in nearly half a decade, a period in which many of the largest data center firms fled public markets amid consensus that private capital was the best way to fund the industry’s record growth. 

But some data center executives now say the pendulum may soon swing the opposite direction, with the potential for a wave of data center IPOs on the near-term horizon. 

“The markets are cyclical, and I think the IPO scenario is likely,” Kevin Mammel, chief financial officer at data center developer Rowan Digital Infrastructure, said last month at Bisnow’s DICE: Rockies event in Denver.  “That’s where a lot of data center businesses will end up a few years from now.”

While Switch is by far the largest and most prominent data center firm to float the idea of an IPO in recent months, others in the industry have considered the possibility since the start of the year. In July, Bloomberg reported that blockchain and AI firm Northern Data was mulling an IPO for its AI cloud and data center units, with a potential valuation of around $16B. Azrieli Group announced in January that it was considering an IPO for its data center division. 

Conversations about a potential Switch IPO are at an early stage, but the firm’s owners have reportedly held talks with investment banks about making the move to public markets as soon as 2025, according to Reuters.

Switch was previously publicly traded but was acquired in an $11B take-private deal in 2022 by digital infrastructure superfund DigitalBridge and IFM Investors. A year later, Australian pension fund Aware Super acquired a minority stake with a $500M investment. 

Founded in 2000, the company builds and operates large data center campuses primarily for hyperscale customers. Switch operates campuses in Austin, Reno, Las Vegas, Grand Rapids and Atlanta, with additional development in the works in Georgia and Texas. Switch first went public in 2017 with a market cap of $4.2B at launch.

The data center industry’s period of record growth in 2021 and early 2022 saw four of the most prominent data center providers disappear from Wall Street in the largest flurry of merger and acquisition activity the sector has ever seen.

Prior to Switch's acquisition, asset management giant Blackstone acquired QTS Data Centers in a $10B take-private deal in June 2021. Five months later, CoreSite was acquired by American Tower, while CyrusOne sold to KKR and Global Infrastructure partners — a pair of deals that together exceeded $25B. 

When the dust settled, industry giants Digital Realty and Equinix were left as the only remaining pure data center REITs on public markets. A consensus emerged across the industry that private capital was the better vehicle for funding the rapid development needed to meet an unprecedented surge in demand. This came as a growing pool of eager institutional investors emerged and as the market shifted away from retail colocation and toward large-scale campuses for the world’s largest tech companies.   

A business model increasingly centered around capital-intensive projects on yearslong timelines for single customers, and requiring significant debt, isn't conducive to the kind of predictable quarterly performance Wall Street demands. The remaining public firms like Digital Realty and Equinix faced questions about their viability and have relied on joint ventures with private funds to finance the kind of hyperscale development driving the bulk of the industry’s growth.  

But now things may be shifting in the opposite direction. 

Even before reports emerged that Switch is mulling an IPO, a growing chorus of voices has been pointing to Wall Street as the best option for certain providers as their ballooning scale and value tests the limits of the private market’s ability to fund growth. 

“I see the future as publicly traded companies again,” David Dunn, chief operating officer at H5 Data Centers, said at DICE: Rockies. “It’s going to go back to the world we used to have, with public markets and being beholden to quarterly earnings and hanging on every word of earnings calls.” 

Dunn and other industry leaders say that previous rounds of M&A transactions have largely tapped out the private equity funnels from institutional investors. Now, while the capital pool has expanded, so have the number of companies like Switch whose valuations have expanded into the tens of billions.

At the same time, the scale and cost of individual development projects has shot up over the past 24 months, largely due to the emergence of generative artificial intelligence and the enormous power demand of AI computing. While the largest data center projects used to rarely exceed 300 megawatts of capacity, Big Tech tenants are now routinely looking for deployments of more than a gigawatt in markets across the U.S.  

With only so much private capital to go around, public markets may be the best option for firms to find the capital needed to stay in the game in the months and years ahead. 

“The KKRs, the Blackstones of the world, they’ve already made their plays, so that private equity pool is already tapped — there are other pools out there, but they are insufficient relative to the industry's growth,” Stack Infrastructure CEO Brian Cox said at DICE: Rockies.  “We're going to have to get creative as an industry because we'll need capital to keep the wheel spinning. It's going to be a public capital markets activity.”