By Aaditya GovindRao and Roushni Nair
(Reuters) - Goodman Group's stock has been on a hot streak this year, shining bright among its Australian real-estate peers as the artificial intelligence boom has driven a frenzied demand for data centres.
Global "hyperscalers", or large-scale cloud service providers, such as Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Meta (NASDAQ:META), have been spending billions on data centres to cater to growing demand for AI services.
Australia's data-centre market, though nascent, saw outsized investment this year with Blackstone (NYSE:BX) buying AirTrunk for A$24 billion ($14.91 billion) in September and developer NEXTDC raising nearly A$4.6 billion in equity and debt.
Goodman, the country's biggest property developer, counts the world's largest hyperscalers as its customers, its website says, but the company did not confirm the identities of its customers in response to Reuters.
Its inventory, however, reflects the heightened demand for these specialized facilities, with data centres under construction making up 42% of its A$12.8 billion ($7.96 billion) portfolio of projects under development at the end of September, up from 37% at the end of last year.
This has sent its stock flying 45.8% higher this year, positioning Goodman for its best performance since 2006. It is also the Australian real estate index's top performer.
Higher exposure to data centres in development makes the market more comfortable paying a higher multiple for the business, said John Lockton, head of investment strategy at Sandstone Insights.
"Investments into data centres continue to see momentum ... We expect this environment to continue to support Goodman – CAPEX outlook for hyperscalers implies ongoing growth for FY25."
The consensus is split on whether Goodman's stock rise can continue. Some factions of the market highlighted that investor interest in data-centre-focused stocks has begun to cool as valuations get rich.
They drew caution from landlord DigiCo Infrastructure REIT's initial public offering this month, where it raised A$2 billion, but the stock fell 9% on debut.
"We think Goodman's securities are expensive at current prices ... we are more cautious about assuming maintainable excess returns from DC investment in the longer term," said Winky Yingqi Tan, a Morningstar analyst focused on REITs.
Tan also flagged risks of data-centre obsolescence leading to capital-intensive upgrades, and rivals adding more supply, as factors that could erode Goodman's returns over time.
Lockton, however, remains upbeat on Goodman's prospects. He lauds its existing pipeline, and access to land with power supply that can be converted to data centres, which rivals have flagged as difficult to obtain.
($1 = 1.6093 Australian dollars)