Written by Aditya Govindrao and Roshni Nair
(Reuters) – Goodman Group shares have been on a hot streak this year, shining brightly among its Australian property peers as the artificial intelligence boom fuels feverish demand for data centres.
Global “super-specialists,” or large-scale cloud providers, such as Amazon (NASDAQ:), Microsoft (NASDAQ:) and Meta (NASDAQ:), are spending billions on data centers to meet the growing demand for AI services.
The Australian data center market, although new, has seen heavy investment this year, with Blackstone (NYSE:) buying AirTrunk for A$24 billion (US$14.91 billion) in September, and developer NEXTDC raising nearly $4.6 billion Australian equity and debt.
Goodman, the country's largest real estate developer, says the world's largest real estate developers are its clients, but the company would not confirm the identities of its clients in response to Reuters.
However, its inventory reflects growing demand for these specialist facilities, with data centers under construction making up 42% of the A$12.8 billion (US$7.96 billion) portfolio of projects under development at the end of September, up from 37% at the end. From last year.
This has seen its shares rise 45.8% this year, putting Goodman on its best performance since 2006. It is also the best performer in the Australian Property Index.
Higher exposure to data centers under development makes the market more comfortable paying a higher multiple for the business, said John Lockton, head of investment strategy at Sandstone Insights.
“Investments in data centers continue to see momentum…and we expect this environment to continue to support Goodman – Hyperscalers capex forecasts point to continued growth for FY25.”
Consensus is divided on whether Goodman's stock rally can continue. Some market factions have highlighted that investor interest in data center-focused stocks has begun to cool as valuations get richer.
They took notice of landlord DigiCo Infrastructure REIT's initial public offering this month, which raised A$2 billion, but the stock fell 9% on its debut.
“We think Goodman securities are expensive at current prices… We are more cautious about assuming sustainable excess returns from investing in the capital over the long term,” said Winky Yingqi Tan, a Morningstar analyst who focuses on REITs.
Tan also pointed to the risks of aging data centers leading to capital-intensive upgrades, and competitors adding more supply, as factors that could erode Goodman's returns over time.
However, Lockton remains optimistic about Goodman's prospects. He praises the existing pipeline, and access to land with power supplies that can be converted into data centers, which competitors have pointed out is difficult to obtain.
($1 = 1.6093 Australian dollars)
