World Stock Watch

Data Centre Boom Fuels Goodman Group’s Soaring Stock

The artificial intelligence revolution has sparked a frenzy in the demand for data centres, and Goodman Group’s stock has been reaping the benefits. Among its Australian real-estate peers, Goodman’s shares have shone bright, driven by the surge in demand from global “hyperscalers” such as Microsoft and Meta.

Australia’s Data Centre Market Sees Unprecedented Investment

This year, Australia’s data-centre market witnessed unprecedented investment, with Blackstone’s A$24 billion acquisition of AirTrunk in September and developer NEXTDC raising nearly A$4.6 billion in equity and debt. Goodman, the country’s largest property developer, counts the world’s largest hyperscalers as its customers, although the company did not confirm their identities.

Goodman’s Inventory Reflects Growing Demand for Data Centres

Goodman’s inventory tells the story of the heightened demand for specialized data centre facilities. At the end of September, data centres under construction made up 42% of its A$12.8 billion portfolio of projects under development, up from 37% at the end of last year. This significant exposure to data centres has sent its stock soaring 45.8% higher this year, positioning Goodman for its best performance since 2006.

Market Confidence in Goodman’s Growth Prospects

The market is increasingly confident in Goodman’s growth prospects, with its stock flying high. John Lockton, head of investment strategy at Sandstone Insights, attributes this to the company’s higher exposure to data centres in development. “Investments into data centres continue to see momentum… We expect this environment to continue to support Goodman – CAPEX outlook for hyperscalers implies ongoing growth for FY25.”

Split Consensus on Goodman’s Stock Rise

However, not everyone is convinced that Goodman’s stock rise can continue. Some market factions have raised concerns that investor interest in data-centre-focused stocks has begun to cool as valuations get rich. The recent IPO of landlord DigiCo Infrastructure REIT, which raised A$2 billion but saw its stock fall 9% on debut, has also sparked caution.

Risks and Challenges Ahead

Winky Yingqi Tan, a Morningstar analyst focused on REITs, highlights the risks of data-centre obsolescence leading to capital-intensive upgrades and rivals adding more supply, which could erode Goodman’s returns over time. Tan also notes that Goodman’s securities are expensive at current prices and advises caution when assuming maintainable excess returns from data centre investments in the longer term.

Goodman’s Strengths and Opportunities

Despite these concerns, Lockton remains upbeat on Goodman’s prospects, citing its existing pipeline and access to land with power supply that can be converted to data centres. These strengths, combined with the ongoing demand for data centres, position Goodman for continued growth and success.