Of all the ASX stocks getting hammered on the back of the DeepSeek news today, DigiCo Infrastructure REIT (ASX: DGT) has to be one of the worst.
Units of this data centre-focused real estate investment trust (REIT) closed at $4.77 each last week. But those same units opened at $4.44 this morning and are currently trading well below that at just $4.24. That's down a horrid 11% so far this Tuesday.
As many investors would know by now, the markets have been rocked by a big new development in the artificial intelligence (AI) space today.
As we discussed this morning, Chinese firm DeepSeek has unveiled a new generative AI model that was reportedly developed with relatively low resources and investment. Even so, this model is allegedly competitive with cutting-edge programs like ChatGPT.
This has upended assumptions about how much resources, particularly chip and energy use, AI products will need going forward. This, in turn, is dramatically affecting certain stock prices on the ASX today.
Digico REIT is one of those stocks.
Along with other major data centre shares, interest in Digico has been rising as investors assumed that demand for data centres will continue to run hot. However, as we've just discussed, the DeepSeek report has fundamentally challenged those assumptions. Hence the massive share price drop we've seen with Digico and other data centre-focused stocks.
However, it's not all bad news for Digico investors. Some ASX experts have come out today and told investors that the future remains bright.
ASX experts see a DeepSeek buy opportunity
One of those experts is ASX broker Citi. As reported in the Australian Financial Review (AFR) today, Citi analyst Siraj Ahmed stated that he does not expect DeepSeek's new model to "impact short-term demand for data centre capacity".
Further, Ahmed argued that Digico's pipeline of contracts is unlikely to be impacted by the new model. He also predicts that "hyperscalers would continue to deploy capacity to meet customer demand".
However, he does acknowledge that there is a longer-term risk for data centre operators from cheaper models and lower compute costs that might accelerate AI adoption.
Analysts at UBS largely agree with Citi's assessment and are even more bullish on Digico. According to reporting in The Australian today, UBS analyst Tim Plumbe has given Digoco units a 'buy' rating and a 12-month share price target of $5.60. If accurate, that implies a potential 32% upside.
Here's some of what Plumbe had to say:
In our view, DGT is well positioned to leverage existing assets and new sites – particularly SYD1, where current available capacity and the densification of existing space and expansion, together with new ownership and upcoming government certification has the ability to materially increase both the earnings and valuation multiple profile of the group.
So perhaps today's sell-off in the Digico unit price is a buying opportunity. That appears to be the view of these two ASX experts, at least. Let's see what happens with Digico and other data centre stocks over the rest of the trading week.
