Why is the last major ASX IPO of 2024 crashing on Monday?

Shares in the newly listed company are down 17% from the ASX IPO price.

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It's an inauspicious day today for the last major ASX initial public offering (IPO) of 2024.

The newly listed company in question is DigiCo Infrastructure REIT (ASX: DGT).

As you may be aware, the real estate investment trust (REIT) began trading at midday last Friday on a conditional and deferred settlement basis.

DigiCo shares are scheduled to begin trading on a normal settlement basis this Wednesday, 18 December.

In the partial day of trade on Friday, DigiCo shares opened at $4.98 per share, down 0.4% from the ASX IPO price of $5.00 per share.

When the closing bell rang on Friday, shares were changing hands for $4.55 apiece, down 9% from the offer price.

Today, the pain continues, with DigiCo shares changing hands for $4.19 at the time of writing. That's down 8% in intraday trading today and 16.2% lower than the ASX IPO price.

What is DigiCo focused on?

Investors buying into the ASX IPO are buying into a REIT with a focus on data centres.

DigiCo's initial portfolio holds 13 properties in North America and Australia, which it will own, operate, and develop.

According to the company's prospectus:

The asset class is underpinned by structural tailwinds including increasing growth in data creation and consumption, digitalisation of businesses, growing reliance on the cloud, adoption of next generation technologies including artificial intelligence, the acceleration of the technology sector globally and increased outsourcing of data centre services to specialised operators.

How did the ASX IPO go?

DigiCo raised $1.995 billion from its ASX IPO pursuant to the offer under its replacement prospectus.

As the Motley Fool reported on Friday, "The proceeds will be used to fund the initial portfolio of properties, including repaying loans from DigiCo's asset and investment manager, HMC Capital Ltd (ASX: HMC)."

Commenting on what he believes will be long-term tailwinds for DigiCo shares, Joseph Carrozzi, independent non-executive chair of HMC Digital Infrastructure, said:

Digitalisation is driving the rapid increase in demand for external data storage and processing solutions worldwide.

In addition, generative AI (GenAI) is experiencing exponential growth, driving demand for compute requirements. This demand uplift has occurred swiftly over recent years and generally has outpaced supply, leading to increased investment into the sector.

DigiCo said it expected to deliver annualised FY 2025 adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $97 million.

Why are DigiCo shares under pressure on Monday?

DigiCo garnered significant investor interest with its focus on data centres required to meet the rapidly growing demand from the AI revolution.

Nothing has changed with that over the past few weeks.

So, unless the ASX IPO was overvalued from the get-go, I believe the stock is under selling pressure today as investors reconsider the future pace of the US Federal Reserve's interest rate cuts.

Under the new Donald Trump presidency, it looks increasingly likely that we'll see the United States impose tariffs on China, Mexico and Canada. This could well be inflationary and lead the Fed to keep interest rates in the world's top economy higher for longer than markets have been pricing in.

And with DigiCo priced as a growth stock, some investors could be having second thoughts on their timing today.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended HMC Capital. The Motley Fool Australia has recommended HMC Capital. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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