It's been a wild start to the short trading week so far this Tuesday. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) has recovered from a dramatic early slump and is currently ahead by 0.14%. But let's talk about three ASX data centre shares that haven't been so lucky.
First up is real estate investment trust (REIT) and leading data centre operator, Goodman Group (ASX: GMG).
Goodman units closed at $38.12 each last week. But today, those same units opened at just $25.19 and are currently down a hefty 6.9% at $35.49 apiece.
It's a similar story for another ASX 200 data centre share, NextDC Ltd (ASX: NXT). NextDC shares finished last week at a price of $15.90 each. But this morning, the company opened at just $14.77 a share, and is currently down 6.38% at $14.885.
There's also the new data centre kid on the block, DigiCo Infrastructure REIT (ASX: DGT). It's getting an even nastier shellacking from investors, currently down 10.38% at $4.275 a unit.
So why are these ASX data centre shares seemingly getting singled out for this particularly heavy punishment today?
Well, it's hard to say for sure, given there have been no new official ASX announcements out of these data centre operators today.
However, another factor is highly likely to be spooking data centre investors today.
As we reported this morning, the American markets also had a wild start to their week. The tech sector was rocked by news that the Chinese artificial intelligence (AI) industry may have made significant advancements and is potentially even drawing level with its American counterparts.
This sent shockwaves through the American tech sector. Semiconductor giant and leading AI company Nvidia Corporation was hit particularly hard, crashing more than 17% in US trading on Monday. But other leading US tech shares, including Tesla, Microsoft, and Google-owner Alphabet, were also walloped.
If you were wondering what a Chinese AI model has to do with ASX data centre shares like Goodman, Digico and NextDC, I wouldn't blame you. But there's a logical explanation here.
Data centre providers have seen demand for their services explode over recent years. A big part of this demand has been driven by AI technologies. AI providers like Alphabet and the Microsoft-backed ChatGPT need a lot of data centre firepower to run their AI programs.
Investors had probably been assuming that demand from these big American companies would continue to climb exponentially for years into the future. But this confidence appears to have been shaken severely by the news out of China.
That's understandable. After all, if Chinese companies manage to take a big slice of the AI market, American companies like Alphabet and Microsoft might not have the demand for their own products to justify continued investment in data centre capacity.
If that is indeed the case, it is arguably bad news for the likes of Goodman Group, NextDC and other ASX data centre shares.
However, some ASX experts are telling investors not to panic today.
As reported in The Australian today, Howard Penny, an analyst at ASX broker Citi, has told investors that Goodman Group, in particular, is still well placed to profit from AI growth, including from Chinese providers. That's despite an acknowledged risk that "global demand" could fall short of expectations. Here's some of what he said:
In our view, Goodman's portfolio remain well positioned with 5GW – potentially growing to over 10GW in time – of newly developed Data Centers positioned for the ever-changing environment.
Development can remain more agile and flexible to the evolving technological and demand changes in the AI environment, in our view. Our current view is to still expect strong demand for the data center category from a combination of expanding AI demand and core digital transformation needs with average annual incremental demand of around 10 GW within our global model.
Citi also has a 'buy' rating on NextDC shares, alongside a 12-month share price target of $20.
Let's see what happens in this space going forward.
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