The ASX data centre share Nextdc Ltd (ASX: NXT) has soared close to 80% since November 2022, as the chart below shows. It's one of the stocks that analysts are currently most bullish about, though Chinese AI expansion could be a hurdle for long-term growth, hence the 6% decline today related to DeepSeek.
Nextdc describes itself as Asia's most innovative data centre as a service provider. It says it's building the infrastructure platform for the digital economy, "delivering the critical power, security and connectivity for global cloud computing providers, enterprise and government".
It's a major enabler of local and international customers building complex hybrid cloud networks and scaling their critical IT infrastructure services.
There has been much commentary that data centres are using a lot of power and are forecast to use a lot more. In the 2024 AGM presentation, Nextdc said hyperscale colocation is the key to energy efficiency and that hyperscale data centres are up to 27% more efficient than on-premise infrastructure, resulting in 2 TWh electricity saved thanks to centralisation.
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How many analysts like this ASX data centre share?
Factset has collated the opinions of analysts about a wide range of businesses on the ASX.
Currently, there are nine buy ratings on Nextdc, with only one broker having a sell rating. The market has a very one-sided view – it is bullish on the business.
There aren't many companies where analysts have a higher percentage of buy ratings on a business.
The ASX data centre share is clearly well-backed by experts, and there is a clear reason why analysts are excited about it.
Strong demand for more data centres
There is a growing demand for data centres in Australia and around the world because of trends like cloud computing and artificial intelligence.
Companies like Alphabet (Google), Microsoft, and Amazon are driving a lot of the demand. For example, according to CBRE, AWS (Amazon Web Services) plans to invest an additional $13.2 billion in Australian cloud infrastructure between 2023 to 2027, while Microsoft is expected to invest $6 billion in expanding its hyperscale cloud computing and AI infrastructure in Australian between 2023 to 2025.
In a CBRE report about data centres, it said:
The future pipeline indicates the growth of data centres is being driven by hyperscalers, with AI expected to generate a step-change in demand for the medium to long-term.
…The challenge for hyperscalers is their ability to fund land acquisitions. As a result, these groups have been looking at alternative ways of gaining access to land that has sufficient power. This has been achieved via joint ventures and/or leases. We expect to see more strategic partnerships to secure space in the Australian market in the market in the medium term.
Hyperscalers have chosen Australian as their 'hero' site and will require large capacity to support the growth in cloud computing.
Nextdc is building data centres in a number of locations to accommodate the demand in the Asia Pacific region, including in Sydney, Melbourne, Brisbane, Perth, Adelaide, Auckland, Darwin, Kuala Lumpur, Sunshine Coast, Tokyo, Geelong, and Gold Coast.
The future largely seems bright for the ASX data centre share; however, it may not be easy going if new Chinese AI offerings lower demand for Western AI offerings.
DeepSeek to hurt Nextdc shares?
It seems as though the major tech players in the US may have a fight on their hands for global AI dominance. The AI assistant made by DeepSeek, a Chinese company, seemingly has similar chat capabilities as ChatGPT.
If Chinese tech companies are relatively close to their US counterparts, this could lower the usage of US AI and result in less demand for the underlying infrastructure (such as data centres).
The Australian reported on comments from Citi analyst Siraj Ahmed, who is not too worried about the DeepSeek impact on Nextdc in the shorter term:
With the new open-source DeepSeek R1 model having comparable performance to OpenAI's o1 reasoning model at at a fraction of the cost, the key question is whether it could impact demand for data centre capacity and therefore demand for NEXTDC.
We do not expect it to impact near-term contracts/demand for NXT and would expect hyperscalers to continue to deploy capacity to meet customer demand and see the Stargate project as well as Meta's 60 per cent year-on-year increase in capex as signs that AI build-outs are not slowing.
While we do expect cheaper models/lower compute costs to accelerate AI adoption, we do acknowledge potential risks to long-term data centre capacity and see potential for NXT to trade weaker today noting that peers Digital Realty/Equinix are down 10-15 per cent.
Citi still has a buy rating on Nextdc shares and a $20 price target on the business, implying significant gains from its current position.
