Asia's Data Center Boom Fuels Sizzling Valuations

Global investors are flocking to Asia-Pacific data center operators, undeterred by high valuations driven by soaring demand for artificial intelligence services, according to Reuters. Industry executives attribute the premium valuations to the sector's nascent stage and promising growth prospects, though some express concerns about infrastructure limitations.

Data centers, which house the computer servers and equipment for data processing and storage, are attracting significant investment through direct stake purchases and public offerings. A key benchmark was set in September when Blackstone acquired AirTrunk, an Australian data center group, for over A$24 billion (approximately $15.58 billion), representing more than 20 times the target's forward core earnings.

The sale of a stake in Indonesia's NeutraDC has generated considerable interest from several parties, including Singapore Telecommunications (Singtel) and BDx Data Centers, according to sources with direct knowledge of the matter. This sale, involving a 20% to 30% stake in Telkom's data center arm, is projected to value the business at over $1 billion.

"A sale of roughly 20% to 30% stake in the data centre arm of Indonesian state-owned communication company Telkom, which kicked off in October, could value the business at more than $1 billion, sources have said," reports Reuters.

Analyst Niko Margaronis of brokerage BRI Danareksa Sekuritas suggests that NeutraDC's valuation could exceed 20 times its core earnings, citing its capacity expansion plans to reach 500 megawatts by 2028-2030.

Meanwhile, Australia's HMC Capital upsized the IPO of its data center business DigiCo REIT by A$100 million to A$2.75 billion due to strong investor demand. This listing, Australia's largest in 2024, values the business at 26 times forward earnings.

The AirTrunk deal has propelled Asia-Pacific to the forefront of global data center M&A activity in 2024, accounting for over half of global transaction value, according to LSEG data.

"Valuations of data centre assets are reflective of the rapid growth currently being experienced by the sector, driven by large orders from hyperscale customers," said Manjit Balgir, Bank of America's Asia telecom and digital infrastructure head, to Reuters.

While the high valuations reflect the sector's rapid growth and expanding capacity in response to AI demand, some investors caution about execution risks. Inadequate power capacity and infrastructure in some markets could pose challenges, impacting the reliability of data center delivery.

"Reliability on the actual delivery of data centres will become a lot more critical for tenants," said Gilles Chow, CPP Investments' managing director and head of real estate for North Asia.

Despite these potential challenges, several major players are investing heavily in the sector. KKR, for example, acquired a 20% stake in Singtel's Asian data center for S$1.1 billion last year. The firm also partnered with Singtel to invest S$1.75 billion in ST Telemedia Global Data Centres in June.