Last week, I explained why successful investors “Don’t Fight the Consumer.” I said then, “No matter what the Fed is doing or Wall Street is saying, consumer spending ultimately determines how most companies will perform.”

I illustrated that logic with a couple of recent trades involving retail stocks that performed exceptionally well. Today, I am going to expand on that topic by examining a different type of consumer spending.

We tend to think of consumerism as only involving personal spending. However, the consumer isn’t always an individual. Companies are also consumers.

In fact, it is corporate consumerism that is currently driving the huge surge in artificial intelligence (AI) stocks. You and I do not directly consume AI, but we do consume it indirectly via the apps and programs that we use that are enhanced by AI.

That explains Wall Street’s current obsession with AI. Almost every technology that we interact will be using some form of AI very soon (if they aren’t already).

That’s why AI stocks are all the rage. Since I recommended AI processor manufacturer Nvidia (NSDQ: NVDA) to my readers in October 2023, it has risen from $120 to $900. That works out to a gain of 650% in just seventeen months!

That enormous increase in value is not driven by our behavior as individual consumers. At least, not yet. It is driven by how our future consumer behavior will benefit businesses that we buy from that use AI to gain a competitive edge.

Data Storage REITs

No matter how AI is consumed, the apps and programs using it must be housed in a secure location with enormous computing power. That is why I added real estate investment trust (REIT) Digital Realty Trust (NYSE: DLR) to the Personal Finance Income Portfolio five years ago.

Digital Realty owns over 300 data centers in more than 50 cities serving 5,000 customers around the world. It was one the first REITs to capitalize on the rapidly expanding need for cloud computing.

That turned out to be a good move. Since adding DLR to our portfolio, it has nearly doubled in value.

The success of that trade inspired me to add another REIT, Iron Mountain (NSYE: IRM), to our portfolio the following year. At that time, the company was beginning the process of transitioning some of its underground storage facilities to highly secure data processing centers.

At the end of 2020, I identified Iron Mountain as one of “Our Three Favorite High-Yielders for 2021.” I said then, “As Iron Mountain’s data management and digital solutions revenues expand, so does its operating margin.”

That expectation has proven true. So much so, that since that article was published IRM has delivered a total return (share price appreciation plus dividends paid) of more than 200% while the SPDR S&P 500 ETF Trust (NYSE: SPY) has returned less than 50%.

Think about that statement for a moment. A “boring” REIT has performed more than four times better than the S&P 500 Index during the past three years.

Past is Prologue

I don’t know what the next three years hold in store for REITs, but I’m hanging on to DLR and IRM. That’s because the market for AI is projected to grow by a compound annual growth rate of 16% over the remainder of this decade.

All that processing capacity must be stored somewhere. And right now, Digital Realty and Iron Mountain are at the forefront of that market.

Despite their strong performance recently, it’s not too late to own either REIT if you don’t already. In fact, both are still reasonably priced given their enormous upside potential.

And since they are REITs, by law they must pass through at least 90% of their net taxable income to their shareholders to retain their tax-exempt status. That means their dividend payments are likely to increase substantially in the years to come.

Not only are these REITs making money from the AI programs that are housed on its super computers. They are also using AI to make those facilities operate more efficiently.

According to a recent announcement from Digital Realty, it “uses machine learning to provide a comprehensive dashboard that lists optimization opportunity at each facility, prioritized by potential megawatt-hour savings.” That means less energy is wasted, thereby improving the REIT’s profitability.

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Editor’s Note: It’s clear that every portfolio should have exposure to cryptocurrency. As crypto forges head, we’ll see buying opportunities in this red-hot sector, too.

However, you need to be informed, to make the right choices at the right time. Make the right move and you could reap huge gains in a short amount of time. Make the wrong move, and you could lose your shirt.

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