Are these the best ASX data centre stocks? [2024]

The AI boom has seen data centre stocks take center stage with Nvidia ($NVDA), Taiwan Semiconductor Manufacturing Company ($TSMC), Intel ($INTC) and Advanced Micro Devices ($AMD) being some of the most-traded on Wall Street.

For ASX-investors looking for exposure to the sector locally, there’s a compelling opportunity to be part of the growth story. The sale of Australian hyperscale data centre business AirTrunk to Blackstone for A$23.5b is a testament to the size of valuations for companies in this sector. All eyes will be on related firms that are publicly traded, as investors will be keen to gauge how this landmark deal impacts the broader data centre market and what it might mean for future investment opportunities in this rapidly growing industry.

Watch these Australian data centre companies on the ASX

Data as of 3 September 2024. Source: Stake, ASX.

*The list of shares mentioned is ranked by market capitalisation. When deciding what assets to feature, we analyse the financials, recent news and announcements, the state of the industry and the company's projects, and whether or not they are actively traded on Stake.

Explore the top ASX data centre stocks

1. Goodman Group ($GMG)

• Market capitalisation: $63b
• Stock price (as of 03/09/2024): $33.07
• Our customers watching and trading $GMG (as of 3 September 2024): 2,844 watching and 3,153 orders executed

Goodman Group ($GMG) is one of Australia's largest industrial property groups. They own, develop, and manage industrial real estate assets such as logistics facilities, warehouses, and business parks globally. 

While traditionally focused on logistics and warehousing, Goodman has recognised the immense potential of the data centre market, driven by the surge in cloud computing, artificial intelligence, and digital transformation. They are strategically expanding into data centres, leveraging their expertise in property development and management to create specialised facilities that meet the requirements of data centre operators.

Over the past year, GMG's share price has seen reasonable growth, with shares trading at $32.96, up 43% YoY. GMG has consistently paid dividends, demonstrating its commitment to returning value to shareholders. The latest dividend payment was $0.15 per share.

Investing in GMG presents a compelling opportunity for investors seeking exposure to the burgeoning data centre industry. However, like any investment, it carries inherent risks. The real estate sector, including data centres, can be sensitive to economic cycles and interest rate movements. Competition in the data centre market is also evolving rapidly, with both established players and new entrants vying for market share. 

GMG may be well-suited for investors with a moderate to high-risk tolerance and a long-term investment horizon. Those interested in the growth potential of data centres and willing to hold tight on market fluctuations could find value in this addition to their portfolio.

2. NEXTDC Limited ($NXT)

• Market capitalisation: $9.84b
• Stock price (as of 03/09/2024): $16.56
• Our customers watching and trading $NXT (as of 3 September 2024): 2,167 watching and 2,570 orders executed

NextDC ($NXT) is Australia's leading independent data centre operator, specialising in the design, construction, and operation of premium colocation data centres. The company caters to a diverse clientele, including enterprises, government agencies, and telecommunications carriers, providing them with scalable, secure, and reliable data centre infrastructure. 

NextDC's revenue model is primarily based on recurring colocation fees, which include charges for space, power, and connectivity within their state-of-the-art facilities. The company's strong focus on sustainability and innovation sets them apart in the data centre space. They are at the forefront of developing environmentally friendly data centres and continuously invest in cutting-edge technologies to meet the evolving needs of their clients.

NextDC's share price has seen upward momentum of late, gaining +24.83% YoY at $16.39 per share (as of 2 September 2024). The company's robust financial performance largely drives strong results, expanding customer base, and growing demand for data centre services in Australia. However, the share price has also seen some volatility due to broader market sentiment.

This stock offers exposure directly to the data centre market in Australia, which is expected to continue its growth trajectory. However, as with any growth-oriented investment, there are risks. The data centre industry is capital-intensive, requiring substantial investments in infrastructure and technology. NextDC's ability to maintain its competitive edge through innovation and operational excellence will be crucial. 

Given its growth profile and inherent risks, NextDC is well-suited for investors with a higher risk tolerance, exposure to the digital infrastructure sector and a long-term investment horizon.

3. Macquarie Technology Group Limited ($MAQ)

Market capitalisation: $2b

Stock price (as of 03/09/2024): $78.46

Our customers watching and trading $MAQ (as of 3 September 2024): 17,654 watching and 538 orders executed

Macquarie Telecom Group ($MAQ) is a prominent player in the Australian telecommunications and data centre landscape. The company offers a comprehensive suite of services, including data centre colocation, cloud hosting, cybersecurity, and managed IT solutions. In the data centre domain, MAQ owns and operates multiple state-of-the-art facilities across Australia, providing secure and reliable infrastructure to support the growing digital demands of Australian businesses and organisations.

Over the past year, Macquarie Telecom Group's share price has displayed stable growth. As of 2 September 2024, $MAQ shares are trading at $79.30. Their steady performance can be attributed to MAQ's consistent financial results, its strong reputation in the market, and its growing portfolio of data centre assets.

The telecommunications and data centre industries are subject to technological disruption and evolving customer demands which is a risk like any investment. Potential investors should carefully assess these factors before making an investment decision. MAQ is well-suited for investors with a moderate risk tolerance who prioritise stability and capital appreciation.

4. Megaport Limited ($MP1)

Market capitalisation: $1.3b

Stock price (as of 03/09/2024): $8.12

Our customers watching and trading $MP1 (as of 3 September 2024): 1,847 watching and 5,472 orders executed

Megaport ($MP1) is a global leader in Network as a Service (NaaS), revolutionising how businesses connect to cloud services, data centres, and other vital digital infrastructure. Megaport's primary revenue source is derived from monthly recurring subscription fees for its NaaS platform, along with usage-based charges for data transfer and additional services. In the data centre space, Megaport acts as a crucial enabler, providing seamless connectivity between different data centres, cloud providers, and end-users, making it easier and more cost-effective for businesses to leverage distributed digital resources.

Megaport has consistently grown its revenue and customer base, solidifying its position in the NaaS market. It's worth noting that Megaport does not currently pay dividends, as the company prioritises reinvesting profits to fuel its continued expansion and innovation. MP1 shares also declined significantly after posting disappointing guidance for FY25.

Investors that want to participate in the growth of the global NaaS market and the broader digital transformation trend may like what Megaport represents. However, potential investors should be aware of the associated risks. As a technology company operating in a rapidly evolving industry, Megaport faces competition from established players and emerging rivals. The company's success hinges on its ability to maintain technological leadership, expand its network reach, and continue attracting and retaining customers.

Megaport is most suitable for higher-risk investors who are comfortable with volatility and have a long-term investment perspective. Investors who believe in the long-term potential of NaaS and Megaport's role in shaping the future of data centres down under may want to dive into the company fundamentals even more.

How to invest in data centres through ASX shares

You’ll need to follow these steps if you are wishing to invest in the top data centre companies in Australia:

1. Find a stock investing platform

To buy data centre stocks on the ASX, you'll need to sign up to an investing platform with access to the Aussie stock market. There are several share investing platforms available, of which Stake is one.

2. Fund your account

Open an account by completing an application with your personal and financial details. Fund your account with a bank transfer, debit card or even Apple/Google Pay.

3. Search for the company or ticker symbol

Find the company name or ticker symbol. It is advised to conduct your own research to ensure you are purchasing the right investment product for your individual circumstances.

4. Set a market or limit order and buy the shares

Buy on any trading day using a market order, or a limit order to delay your purchase of the asset until it reaches your desired price. You may wish to look into dollar cost averaging to spread out your risk, which smooths out buying at consistent intervals.

5. Monitor your investment

Once you own the stock, you should monitor its performance. Check your portfolio regularly to ensure your investment is aligning with your financial goals.

Are data centre shares a good investment?

The data centre industry is experiencing unprecedented growth, fueled by the digital transformation of businesses, the rise of cloud computing, and the proliferation of data-intensive technologies like artificial intelligence. This surge in demand for data storage and processing has made data centre companies an attractive prospect for investors seeking exposure to this sector.

Just remember, like any investment, the potential for rewards also carries inherent risks. A thorough understanding of the market and individual companies is crucial for making informed decisions.

What are the risks of investing in data centre companies?

The data centre industry can be an interesting way to diversify for those willing to carefully research and choose companies with solid fundamentals. The choice to invest in data centre shares should align with your individual risk tolerance, investment goals, and time horizon. Consider the potential risks below or consult with a financial advisor before making any investment decisions.

• Capital intensive: Building and operating data centres requires substantial capital investment, which can lead to high debt levels for some companies.
• Competition: The data centre space is already becoming competitive, with both established players and new entrants vying for market share.
• Technological disruption: The rapid pace of technological change can render existing data centre infrastructure obsolete, requiring ongoing investment in upgrades and innovation.
• Regulatory changes: Government regulations related to data privacy, security, and energy consumption can impact the operations and profitability of data centre companies.

What data centre ETFs can I invest in?

While there is yet to be any data centre ETFs available on the ASX, jumping across to Wall St there are a few options if you want to gain exposure to this thematic and diversify your portfolio.

• Global X Data Center and Digital Infrastructure ETF ($DTCR): This ETF seeks to invest in companies operating data centres and other digital infrastructure supporting communication networks, aiming to provide investment results that correspond generally to the price and yield performance of the Solactive Data Center REITs & Digital Infrastructure Index, before fees and expenses.
• iShares U.S. Digital Infrastructure and Real Estate ETF ($IDGT): This ETF targets exposure to U.S.-listed companies involved in infrastructure for the storage, processing, transmission and/or access of digital data and services.

Compare the performance of DTCR vs IDGT using our stock and ETF comparison tool.

This article was edited by Samy Sriram.

This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. When you invest, your capital is at risk. You should consider your own investment objectives, financial situation, particular needs. The value of your investments can go down as well as up and you may receive back less than your original investment. As always, do your own research and consider seeking appropriate financial advice before investing.

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