Why Prologis May Be the Smartest Backdoor Bet on AI Real Estate
Prologis Inc. (NYSE: PLD) has taken investors on an unwelcome round trip since it reported earnings on July 16. PLD stock initially jumped 4% after the real estate investment trust (REIT) reported. However, in less than 24 hours, the stock has given up those gains and more. As of midday trading on July 17, PLD stock is down 1.3% from its closing price on July 15.
This could be an example of investors shifting back to technology stocks as the AI trade recovers. However, that rotation into the AI trade is exactly why investors may want to look closely at Prologis.
The industrial REIT is leaning into the data center arena. Its broad portfolio exposes investors to this long-term trend without paying the premium for dedicated data center REITs like the category leader Equinix Inc. (NASDAQ: EQIX), which trades at 80x earnings.
The Landlord for Data Center Landlords
Prologis's value comes from its positioning within the data center category. Many hyperscalers, such as Amazon.com Inc. (NASDAQ: AMZN) and Meta Platforms Inc. (NASDAQ: META), want to build custom data centers. However, they need zoned and permitted land near scarce power infrastructure.
This type of land is becoming increasingly rare and is worth a premium price to the right company. That’s precisely where Prologis steps in. The company offers nearly 1.2 billion square feet of industrial space, often near major metropolitan areas with constrained power grids.
These “powered shells” provide real estate and grid access without the need to manage the server-side operations.
Offering the shells without being a full-service operator is an area where Prologis is beginning to capture market share. The benefit for Prologis and investors is that the company doesn’t have to absorb the full capital expense or complex operational details that come with data centers.
A Strong Financial Footing
Prologis’ earnings report was solid but not spectacular. The company's topline revenue of $2.03 billion was in line with expectations and a shade above the $2.01 billion it reported in the prior year.
The bottom line was stronger with the company delivering earnings per share (EPS) of $1.46, which was 5 cents above the $1.41 forecast. It was also 52% higher year-over-year (YOY).
The strong earnings point to the company’s growing funds from operations (FFO) that came in at $1.32, beating forecasts and higher YOY. Importantly, Prologis reaffirmed its full-year FFO guidance for $5.27 to $5.31 FFO per share on expectations of demand resilience, signaling continued confidence in industrial and digital demand trends.
The company’s net debt to adjusted EBITDA of 4.1x puts it in a stronger position than many REIT peers to invest in strategic growth, such as AI infrastructure and data center-adjacent real estate, without overleveraging or sacrificing its dividend.
What’s Next for PLD Stock?
On July 13, Wells Fargo & Co. (NYSE: WFC) gave PLD stock an Overweight rating with a price target of $137. That’s above the stock’s consensus price target of $120.47, a 12.2% gain. When combined with a dividend that currently yields 3.76% investors can get a total return that’s higher than the stock’s 5-year average. Plus, at 27x earnings, the stock trades at a discount to its historical averages.
However, what analysts say after earnings could impact the short-term direction of the stock. After hitting a 52-week low in April, PLD stock has entered a healthy consolidation pattern, trading between $105 and $110 since early June.
The MACD remains in bullish territory, and price action is coiling above its 50-period SMA, suggesting accumulation, not distribution. Should the stock break above the $110 resistance, it could confirm a trend reversal.
