ASX data centre shares are seeing ever-growing demand from cloud computing, spurred on by COVID-19 work-from-home changes.
Which leads me to ask this question…
Do you remember the first time you heard the term 'in the cloud'?
For me, it was back in 2007. The Netherlands-based company I was working for at the time had its own mainframe computers humming away in a back room.
While the wardrobe-sized machines did the job, they were expensive to maintain. And that back room got hot! So the company's president, eager to be at the cutting edge of technology, investigated shifting a huge trove of data into what he called 'cloud computing'.
Now I knew he couldn't be talking about sending data into the literal clouds – of which you tend to find plenty in the Netherlands. But it took a while to understand that, really, all the cloud represents is banks upon banks of computers located offsite in data centres.
We'll get to those, and the fast-growing demand for cloud computing, shortly.
But first…
Who coined the term 'cloud computing'?
The idea of storing your digital data offsite has been around for more than 50 years.
But it seems that Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) – Google to you and me – gets the credit for coining the term cloud computing. Or more specifically, Google's CEO Eric Schmidt, who first used the term at a conference in August 2006.
With remarkable prescience, Schmidt said at the time (quoted by MIT Technology Review):
What's interesting [now] is that there is an emergent new model. I don't think people have really understood how big this opportunity really is. It starts with the premise that the data services and architecture should be on servers. We call it cloud computing – they should be in a cloud somewhere.
Emergent new model indeed…
The growth and growth of cloud computing
For an idea of just how fast cloud computing is growing Down Under, we turn to the Australian Bureau of Statistics (ABS). According to the ABS Characteristics of Australian Business report, released last week, 55% of Australian businesses are leveraging paid cloud computing. That's up from 42% in 2017-18 and up from 31% in 2015-16.
Commenting on the ABS data on cloud-computing growth, Karl Durrance, director of enterprise at Amazon Web Services (AWS) said: "The past year accelerated our shift to a digital world and highlighted an even more urgent recognition of the problems we need to address together to drive our economy and society forward."
AWS pointed to a report it commissioned from consulting firm AlphaBeta, titled 'Unlocking APAC's Digital Potential: Changing Digital Skill Needs and Policy Approaches'. The report found "43% of Australia's digital workers, who are not applying cloud-computing skills today, believe it will be a requirement to perform their jobs by 2025".
Then there's the IDC Australia Future of Work Survey 2020 that AWS also pointed to. According to the survey, "69% of local organisations indicated that working from home, or a hybrid mix of working from home and in the workplace, will become the norm".
As most of us don't have our own servers stuffed in our back rooms, arguably the demand for cloud computing and the ASX data centre shares that secure the data could be set to keep growing.
Which brings us back around to…
2 ASX shares focused on data centres
NextDC Ltd (ASX: NXT) is one of Australia's leading independent operators of data centres. The company has a network of nine data centres spread across the biggest capital cities.
NextDC shares began trading on the ASX in 2010. Today, the ASX data centre share has a market capitalisation of around $5.1 billion and is part of the S&P/ASX 200 Index (ASX: XJO).
The NextDC share price was up by 4.23% to $11.33 by yesterday's close. That puts the company's shares up by around 23% over the past 12 months. Year to date, NextDC shares have gone the other way, down around 7% so far this year.
A second ASX data centre share is better known as one of Australia's largest housing developers, which also has a large commercial property footprint.
I'm talking about Stockland Corporation Ltd (ASX: SGP), which isn't technically a data centre share just yet. In fact, the company doesn't actually own any data centres – but that's about to change.
As the Australian Financial Review reported yesterday, Stockland is getting ready to build its first data centre at its M Park development in Sydney:
The NSW Government rushed through approval for the data centre, which it said has an end value of $264 million, as a State Significant Development (SSD).
'Fast-tracking data centre assessments are a key part of the NSW government's planning reforms,' said Planning Minister Rob Stokes.
It's understood the five-storey data centre will be a hyper-scale facility leased to a major cloud computing provider, believed to be Amazon Web Services.
Stockland has a market cap of around $11.4 billion and pays a dividend yield of 4.6%, unfranked.
The Stockland share price, which edged 1.27% higher in Tuesday's session, is up by around 21% in the past 12 months. Year to date, the company's shares have gained around 15%.
