By Aaditya GovindRao and Roushni Nair
(Reuters) – Shares in Goodman Group have been on a hot streak this year, shining brightly among their Australian real estate peers as the artificial intelligence boom fueled frenzied demand for data centers.
Global “hyperscalers,” or large-scale cloud providers, such as Amazon (NASDAQ: ), Microsoft (NASDAQ: ) and Meta (NASDAQ: ) are spending billions on data centers to meet growing demand for AI services.
Australia’s data center market, though nascent, has seen massive investment this year with Blackstone (NYSE: ) buying AirTrunk for A$24 billion ($14.91 billion) in September and developer NEXTDC raising nearly A$4.6 billion Australian dollars in equity and debt.
Goodman, the country’s largest developer, counts the world’s largest hyperscalers among its customers, according to its website, but the company did not confirm the identities of its customers in a response to Reuters.
Its inventory, however, reflects increased demand for these specialized facilities, with data centers under construction accounting for 42% of its A$12.8 billion ($7.96 billion) portfolio of projects under development at the end of September, up from 37% at end of last year.
As a result, its shares are up 45.8% this year, giving Goodman its best performance since 2006. It is also the top performer in the Australian property index.
Greater exposure to growing data centers makes the market more comfortable paying a higher multiple for the business, said John Lockton, head of investment strategy at Sandstone Insights.
“Data center investment continues to see 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 the rise in Goodman’s stock can continue. Some factions of the market noted that investor interest in data center-focused stocks has begun to cool as valuations increase.
They drew caution from owner DigiCo Infrastructure REIT’s initial public offering this month, which 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 assumptions of sustainable excess returns from DC investments over the long term,” said Winky Yingqi Tan, a Morningstar analyst focused on REITs.
Tan also flagged the risks of data center obsolescence leading to capital-intensive upgrades, and competitors adding more offerings, as factors that could erode Goodman’s returns over time.
Lockton, however, remains optimistic about Goodman’s prospects. He touts its existing pipeline and access to land with power that can be turned into data centers, which competitors have labeled as hard to come by.
($1 = 1.6093 Australian dollars)
