Among other data-center providers included in the initiation, Berenberg started coverage of CyrusOne (CONE), Digital Realty Trust (DLR) and QTS Realty Trust (QTS) with hold investment ratings. It gave a sell rating to GDS (GDS).

"Through our analysis of the colocation market, we conclude that, while overall market growth can continue to benefit many players, recent shifts within the industry are converging such that location will become an increasingly important factor for maintaining pricing power and delivering long-term outperformance for investors," Berenberg said. "As such, we believe the best strategy for investment in this sector is to own retail/network dense colocation providers, and only own wholesale providers where valuation is particularly attractive."

CoreSite and Interxion "are indexed to the most favorable data center markets and have the most desirable property portfolios" based on its analysis of nearly 7,000 colocation data centers, Berenberg said in its note to clients. The firm also pointed out these companies have achieved some of the best pricing power among colocation providers historically. "We think this is a strategically important advantage in a colocation market that is experiencing a number of pricing pressures," it said.

Iron Mountain, meanwhile, was presented by Berenberg as "an alternative way to play the wholesale side of the data center business at a discount valuation." It added: "We view IRM's business mix of both data centers and storage as a long-term advantage among wholesale colocation providers due to the higher pricing power of the storage business."

The firm also said it views the current valuations of CoreSite, Interxion and Iron Mountain "as attractive based on historical levels, current price to growth, and our estimate of fair value."

Berenberg said those stocks that received hold ratings -- CyrusOne, Digital Realty Trust and QTS Realty Trust -- are all colocation providers that have a large portion of their business dedicated to wholesale, and "screened on the lower end of desirability (as it relates to pricing power)." The firm added: "We think this is a long-term disadvantage in a colocation market that is experiencing a number of pricing pressures and, given our estimate of fair value, we view the opportunity for significant stock price appreciation for wholesale providers as limited."

As for GDS, the sole recipient of a sell rating in the sector from Berenberg, the firm said "while GDS looks well positioned to capture growing demand in China, we believe the current premium is not warranted considering GDS's price to long-term growth multiple, higher leverage, lower ownership levels, lower margins, lower [return on invested capital], hyperscale focus, and less favorable corporate governance versus peers."