Artificial intelligence and, by extension, cloud computing and data centres have been perhaps the biggest investment theme globally over the past year.
Companies such as Nvidia, Micron, and SpaceX have attracted huge investor interest as the infrastructure demands of the AI industry continue to grow.
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Not all providers created equal
Macquarie has this week issued a research note to clients, which argues that simple ownership of GPUs (graphics processing units) is not enough, but that it has to be paired with the ability to "convert capital, power and installed capacity into useful compute''.
They add:
In our view, useful compute per MW per dollar is the most important metric for assessing Neocloud quality. Neocloud customers buy useful compute output, not machine access. Two operators using the same GPU hardware can deliver materially different performance, utilisation, latency and cost outcomes depending on network architecture, software stack, reliability, batching, caching and customer mix. As the industry matures, durable premiums will accrue to operators that can prove better delivered compute.
To clarify, a neocloud is a specialised cloud provider built to specifically support AI and machine learning workloads.
Which ASX tech companies look set to benefit?
When it comes to the Australian market, Macquarie's top sector picks for companies that can support neoclouds are Megaport Ltd (ASX: MP1) and Nextdc Ltd (ASX: NXT).
Macquarie said in its note to clients that in Australia, neocloud entrants like Firmus and Sharon AI "are competing for the same scarce pool of data centre capacity, adding another source of demand to a market that was already supply constrained''.
They added:
The relevance for NXT is straightforward: neoclouds are being forced to secure data centre capacity ahead of GPU deployment, with NVIDIA supply of GPUs contingent on signing upfront data centre contracts. This pulls demand forward into an already constrained market. NXT's agreement with Sharon AI for 50MW of capacity at its M3 site is an example of this.
Macquarie has a price target of $18.30 on Nextdc shares compared to $13.07 currently.
With regard to Megaport, Macquarie said the company "already has the diversified Enterprise customer base and characteristics that drive quality for Neocloud operators''.
They added:
These characteristics drive lower operating risk (MP1 signs contracts before capex), a net cash position, and higher quality business and customer mix.
Macquarie said Megaport's Latitude business division was also diversified well-beyond just AI, supporting a "highly diverse mix of non-AI workloads, including web hosting, game servers, large relational databases, streaming applications, and traditional enterprise IT migrations that require high performance without virtualisation overhead''.
Macquarie has a price target of $27.80 on Megaport shares compared to $19.90 currently.
