Goodman Group Soars on Data Center Boom

Goodman Group (GMG.AX), Australia's largest property developer, is experiencing a stellar year, driven by the surging demand for data centers fueled by the artificial intelligence boom, as reported by Reuters. The company's stock has surged 45.8% in 2023, marking its best performance since 2006 and making it the top performer on the Australian real estate index.

The AI boom has triggered a global spending spree by hyperscalers, major cloud service providers like Amazon, Microsoft, and Meta, who are investing billions in building out data center infrastructure. Australia's nascent data center market has attracted significant investment, including Blackstone's A$24 billion acquisition of AirTrunk and NEXTDC's A$4.6 billion equity and debt raise.

Goodman counts these hyperscalers as its clients, though the company did not disclose their identities to Reuters. The company's project pipeline reflects the heightened demand for data centers, with these specialized facilities now making up 42% of its A$12.8 billion development portfolio, up from 37% last year.

"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," said John Lockton, head of investment strategy at Sandstone Insights, to Reuters.

While the consensus on Goodman's future stock performance is mixed, Lockton remains optimistic, citing the company's existing pipeline and access to land with power supply suitable for data center development, a key challenge for competitors.

However, analysts like Winky Yingqi Tan of Morningstar highlight potential risks.

"We think Goodman's securities are expensive at current prices," said Tan. "We are more cautious about assuming maintainable excess returns from DC investment in the longer term." Tan also flagged concerns about potential data center obsolescence and increased supply from rivals, factors that could erode Goodman's returns over time.