By Aaditya GovindRao and Roushni Nair
(Reuters) – Goodman Group shares have soared this year and are shining brightly among their Australian property peers as the artificial intelligence boom has created frenzied demand for data centers.
Global “hyperscalers,” or large-scale cloud service providers, such as Amazon (NASDAQ:), Microsoft (NASDAQ:), and Meta (NASDAQ:), have spent billions on data centers to meet growing demand for AI services.
The Australian data center market, while still nascent, saw outsized investment this year: Blackstone (NYSE:) bought AirTrunk for A$24 billion ($14.91 billion) in September and developer NEXTDC raised nearly A$4.6 billion in equity and debt .
Goodman, the country’s largest property developer, counts the world’s largest hyperscalers among its customers, its website says, but the company did not confirm the identities of its customers in response to Reuters.
However, the inventory reflects increased demand for these specialized facilities, with data centers under construction making up 42% of the A$12.8 billion ($7.96 billion) portfolio of projects under development at the end of September, up from 37% at the end of September. from last year.
This has sent the stock up 45.8% this year, giving Goodman its best performance since 2006. It is also the best performing index of the Australian property index.
Greater exposure to developing data centers makes the market more comfortable paying a higher multiple for the company, says John Lockton, head of investment strategy at Sandstone Insights.
“Data center investments continue to show momentum… We expect this environment to continue to support Goodman; the CAPEX outlook for hyperscalers implies continued growth for FY25.”
Consensus is divided on whether Goodman’s stock rise can continue. Some market participants highlighted that investor interest in data center stocks is starting to cool as valuations rise.
They were cautious about landlord DigiCo Infrastructure REIT’s initial public offering this month, where it raised A$2 billion, but the stock fell 9% on debut.
“We think Goodman’s securities are expensive at current prices… we are more cautious about assuming sustainable excess returns from DC investments over the longer term,” said Winky Yingqi Tan, a Morningstar analyst who focuses on REITs.
Tan also pointed to the risks of data center obsolescence, which would lead to capital-intensive upgrades, and rivals adding more supply, as factors that could erode Goodman’s returns over time.
However, Lockton remains optimistic about Goodman’s prospects. He touts the existing pipeline and access to power-supplied land that could be converted into data centers, which rivals have identified as difficult to obtain.
($1 = 1.6093 Australian dollars)