Cloud over data centre profits as market transforms and values fall

Hyperscalers are changing the way they deal with developers of data centres.

Only a few months ago, data centres were all in vogue, but now that could not be further from the truth.

Industry sources involved with buying and selling data centres on the direct market say values have come back 30 to 40 per cent since they hit fever pitch last year.

And the reason is not just about tariffs or slower economic activity. Hyperscalers are changing the way they deal with developers of data centres.

In earlier times, data centre developers such as Goodman Group agreed a deal with large cloud service providers to build their complexes. But the experience for the cloud providers has not always been positive, where the developer withdraws from the project or the data centre produced does not adequately meet their needs.

Now they are asking groups to build the data centre on spec.

That’s one factor, and it makes Goodman Group’s move to raise $4bn when it did in February look inspired, with the shares down 13 per cent in the past month, and major shareholder CIC timed its Goodman sell down to perfection, offloading a 2.6 per cent stake in December for $1.9bn.

Goodman’s raise was all about a plan to develop data centre capacity of 500MW by mid-2026, and it has flagged at some stage a plan to be an operator.

But with the change of position by cloud providers, Goodman will now be cashed up to develop the data centres without requiring an upfront payment from clients.

It means that only large groups with a strong balance sheet can compete in the market.

Adding to the negative sentiment around data centres is that Microsoft’s shares have been hard hit due to investor fears sparked by the rapid success of DeepSeek, the free-to-use AI model built in China.

The technology giant is also reportedly retreating from data centre development plans around the world.

The impact of the negative sentiment is playing out on the ASX amid volatility linked to trade tariffs.

Shares in data centre operator NextDC, a big raiser of equity last year, have retreated almost 30 per cent since the start of the year, and David Di Pilla’s DigiCo Infrastructure REIT is down more than 40 per cent.

The big challenge for Di Pilla’s HMC Capital and DigiCo is that data centres require large amounts of capital for development, and the fund had plans to expand the portfolio.

But with the share price where it is, it would need to raise double the amount of equity and pay double the level of dividends it did if it was trading at its IPO price, which was almost double where shares are today. This while it is trying to buy Healthscope to protect the rents of HMC Capital’s satellite HealthCo, which is Healthscope’s landlord, and finding money to put behind HMC Capital’s acquisition of renewable energy business Neoen for $950m, due to complete in July.

The Neoen deal, with deferred settlement terms, was to be backed with $550m of debt with funds to be raised for the remainder, and $750m is due on financial close in July and the remaining $200m in December.

Meanwhile, turbulence with the data centre market could also cause challenges for New Zealand’s largest listed telco, Spark.

The $NZ3.8bn group has suffered substantial share price falls in the past year, down 56 per cent, and is in need of capital, with $NZ2.7bn of net debt. It plans to sell down its data centres, but where the market is at it may not achieve its price aspirations.

The group has Jarden on hand for the data centre selldown, but while no equity raising is on the cards yet, that may all change if the sale process does not go ­according to plan.