Last year’s $24 billion sale of data centre mammoth Airtrunk to US private equity giant Blackstone marked the largest acquisition in Australia in 2024. It is also the largest data centre (“DC”) transaction globally.

knight frank largest data centre deals 2024

Figure 1: Largest data centres transactions of 2024. Knight Frank. 2025.

This sale sent other DC operators and adjacent companies surging, with investors seemingly reinforcing confidence in this sector, despite elevated valuation multiples.

Although, more recently ASX DC players have experienced a significant downturn in 2025 after Microsoft pulled the plug on several plans for data expansion across the US and Europe. This sentiment was further amplified by Alibaba chairman, Joe Tsai, who sounded the alarm on a potential data centre bubble, suggesting that construction was overtaking real demand for AI services.

What is a data centre?

It’s no secret that the world runs on data, but have you ever wondered how its processed? Stored? To put simply, a data centre is a physical facility used to house IT infrastructure for the building, running, delivering and storage of applications and services. The business model is typically characterised by stable long-term revenue, capital-intensive upkeep and economic resilience. In many ways, data centres are an inflection point where digital infrastructure and commercial real estate converge.

With all eyes on the emergence of AI, DCs have been uniquely positioned to capitalise on this trend. AI requires significant computing power and data storage which DCs can deliver, as well as implement into their own functionalities for a more effective service.

The APAC data centre market

Global data centre growth is projected to reach $4 trillion USD by 2030, reflecting an 18% CAGR. The APAC region is a front runner in global data centre investment accounting for 70% of cross-border investment in 2024.

A recent report by Knight Frank found that Australia’s data centre market now holds strategic advantage in the AI race after the 2025 U.S. ruling granted Australia privileged access to NVIDIA chips. Notably, Australia was the second top DC investment location in 2024 with $6.7 billion, behind the US at $14.6 billion.

How you can capitalise on the trend

Investor sentiment for DCs has been on the rise with a survey finding them the second most preferred alternative asset for investment in 2024, after healthcare.

At the right price, the below ASX players provide some of the best exposure to capitalise on the data centre boom driven by the increasing adoption of AI.

Goodman Group GMG ★★

  • Fair Value: $28.00
  • Moat Rating: Narrow
  • Share Price: $33.57 (as at 06/06/25)
  • Price to Fair Value: 1.20 (Overvalued)
  • Uncertainty Rating: Medium

Goodman Group is Australia’s largest listed real estate investor and with operations in key global consumer markets. The group has been working to pivot their strategic direction from warehouses towards data centres in response to strong demand.

A recent third-quarter update indicated Goodman is on track to meet guidance of 9% operating earnings growth for fiscal 2025. We maintain our forecast in line with this.

The REIT has a ~$14 billion development pipeline, almost half of which consists of data centres. We expect this to expand to three fourths in the medium term, from 40% at June 2024. Assets under management will likely double over the next decade, driven by the large pipeline, and ability to attract capital and difficulty for investors to exit.

Moats generally aren’t ascribed to industrial property. However, Goodman’s property investment segment has distinctive positive characteristics such as the strategic targeting of urban infill locations, which are supply-constrained and in close proximity to end-consumer markets. This does result in longer development times due to higher zoning and replacement costs, however it is unlikely a rival could replicate this and add material new supply of similar products.

Projects completed on Goodman’s own balance sheet are generally rotated off into one of its funds management vehicles. Whilst management fee revenue can be compressed by competitor REIT fund managers, we think the company will continue to attract capital inflows in the longer term. Our midcycle assumption for the management segment is roughly 40% of group earnings, up from one-third as of June 2024.

The balance sheet remains healthy with gearing at 17% (middle of target range) as of December 2024. Our fair value estimate for narrow-moat Goodman is $28 per share, implying a price/earnings ratio of 24x and forward distribution yield of 1.1%. The securities screen overvalued at current levels, largely buoyed by market optimism for data centres.

NEXTDC Limited NXT ★★★

  • Fair Value: $14.00
  • Moat Rating: No moat
  • Share Price: $13.18 (as at 06/06/25)
  • Price to Fair Value: 0.94 (Undervalued)
  • Uncertainty Rating: Medium

NextDC is Australia’s largest listed developer and operator of data centres with 12 operational sites and five more in planning.

Analyst Dan Baker believes the company is well placed to benefit from industry megatrends, including the growing adoption of cloud computing, the Internet of Things, and artificial intelligence, leading to exponential growth in data creation.

Last month, the data centre operator announced its pro forma contracted utilisation rose by 30% since December 2024, leading to a slight uptick in its shares. This represented the largest quarterly increase of contracted utilisation in the company’s history.

The company invested over $2.8 billion between fiscal 2015 and fiscal 2023 to expand its portfolio. This depressed return on invested capital (“ROIC”) which averaged 4% during this period, coming in under half our estimated weighted average cost of capital (“WACC”). Despite NextDC being primed to reap the benefits of this investment and improve margin and ROIC expansion, we do not expect ROICs to consistently exceed our WACC estimate over the next decade.

NextDC’s M1 site which was launched in fiscal 2013 and reached over 90% billing utilisation, had an estaimteed ROIC of 14.6% over the four years from fiscal 2019 to fiscal 2023. This is well above our estimate of the company’s overall WACC of 8.3%. However, we believe it is hard to assume that all of the new planned capacity will generated similar returns with competitors also announcing aggressive Australian expansion plans.

Whilst NextDC is in sound financial health, we do not expect it to generate free cash flow for several years. Our fair value for NextDC is $14 per share, implying an enterprise value/adjusted EBITDA of 36x our fiscal 2024 forecast. Data centre service revenue should average ~14% growth over the next five years as the company expands its footprint.

Digico Infrastructure REIT DGT ★★★

  • Fair Value: $3.40
  • Moat Rating: No moat
  • Share Price: $3.63 (as at 06/06/25)
  • Price to Fair Value: 1.07 (Overvalued)
  • Uncertainty Rating: High

Digico is a diversified owner, operator and developer of data centres with a global portfolio and broad investment mandate spanning stabilised, value-add, and development assets.

Making its ASX debut in December 2024 at $5 per share, Morningstar views Digico as a relatively speculative exposure to the data centre sector.

Last month the NSW government imposed a ban on new data centre facilities in Macquarie Park - a district where Digico’s SYD1 facility competes with potential new data centres. We believe this was laregly influenced by a focus on housing affordability in Sydney with Macquarie Park set to be a key area where the government faces little opposition to new development. However, we do not expect these restrictions on supply to meaningfully affect the supply/demand dynamics for Digico’s assets in the long run.

The company initially has only a small number of data centres across Australia and North America to support a highly leveraged overall business, with most assets either turnaround stories or development projects. We also believe Digico’s assets have been acquired near a likely peak in the highly cyclical data centre sector, which may present liquidity risk if assets need to be sold down.

At IPO, just under 20% of the company’s assets (as measured by total capacity) were operating and generating revenue, whilst the overall group is highly leveraged from several acquisitions. It will be vital for Digico to quickly increase its revenue base in the near term with existing capacity to avoid development or expansion delays.

Digico’s balance sheet is notably weak with expectations of a net debt/adjusted EBITDA of 14x in fiscal 2025 (assuming the successful completion of SYD1 acquisition). SYD1 comprises around half of the company’s enterprise value, however is a mature facility with a mid-70s occupancy rate which is below the mid-80s average for mature facilities.

Our fair value estimate of $3.40 for Digico implies an enterprise value/EBITDA of 15x in fiscal 2030 when we expect the business to achieve steady state. We forecast revenue to grow at a CAGR of 22% between fiscal 2025 and fiscal 2034. This growth will be primarily driven by an expansion in operating capacity. Rental growth and increases in utilisation will be secondary contributors.

Get Morningstar insights in your inbox