Goodman Group has reported remarkable gains in its share values throughout 2024, outperforming many of its counterparts in the Australian real estate sector. This surge in stock performance is largely attributed to the rapid increase in demand for data centres, a trend that has been ignited by the accelerating boom in artificial intelligence technologies.
The global landscape of cloud service provision, dominated by hyperscalers such as Amazon, Microsoft, and Meta, is witnessing substantial financial inflows directed towards the establishment and expansion of data centres. These investments are a direct response to the escalating demand for AI-related services from consumers.
Currently, the Australian data centre market is in its early developmental stages, yet 2024 has seen a notable inflow of investment. In September, for instance, Blackstone executed a significant acquisition by purchasing AirTunk for a staggering $14.91 billion, highlighting the increasing value and potential perceived in this sector.
Goodman's current projects reflect the heightened demand for data centres, with facilities under construction constituting 42% of the firm’s total project portfolio, which is valued at $7.96 billion. This figure marks an increase from the 37% recorded at the end of the previous year. The performance of Goodman shares has soared by 45.8% since January 2024, positioning the company for its best performance since 2006.
John Lockton, the head of investment strategy at Sandstone Insights, noted that “higher exposure to data centres in development makes the market more comfortable paying a higher multiple for the business”, indicating a positive sentiment among investors correlating with Goodman's focus on data centre assets.
However, there is a lack of consensus among analysts regarding the sustainability of Goodman’s share price growth. Some analysts express concerns that as the price of data centre-focused stocks rises, investor interest may begin to wane. Winky Yingqi Tan, a Morningstar analyst who focuses on Real Estate Investment Trusts (REITs), remarked that Goodman’s shares may currently be “expensive at current prices”, cautioning about the potential risks associated with the obsolescence of data centres. She pointed out that the necessity for costly modernisation of these facilities, along with increased competition leading to a higher supply, could ultimately undermine Goodman’s returns.
In light of these developments, the future trajectory of Goodman Group’s stock remains uncertain, as analysts weigh the balance between rapidly growing demand for data centres and the potential challenges posed by market saturation and investment exhaustion.
Source: Noah Wire Services