Home / Sector / AI Stocks / Buying NextDC shares? Here's Moody's 5-year data centre growth forecast
Can NextDC expect to see ongoing data centre demand growth?
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Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets.Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel.
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NextDC Ltd (ASX: NXT) shares have received strong, ongoing tailwinds from the rapid advancement of artificial intelligence (AI).
And if Moody's five-year data centre growth forecast proves out, the S&P/ASX 200 Index (ASX: XJO) data centre operator and developer could enjoy a lengthy growth horizon from here.
That's because despite all the talk of 'the cloud,' AI technology resides firmly within the ever-growing number of next-generation data centres.
Earlier this year, NextDC shares received a boost after the company successfully conducted a $1.3 billion capital raising. Those funds are earmarked to accelerate the development and fit-out of the company's core data centre assets in Sydney and Melbourne.
NextDC CEO Craig Scroggie said at the time, "NextDC continues to see significant growth in demand for its data centre services underpinned by powerful structural tailwinds."
That growth was evident in the company's half-year results, which saw it report a 31% year-on-year increase in revenue to a record of $209 million.
So, what might investors expect from data centre markets next?
NextDC shares could benefit from rapid growth forecast
"Asia-Pacific (APAC) will likely be the fastest-growing market for data centres over the next five years, as rising computing demand fuels expansion globally," Moody's said.
In what could prove good news for NextDC shares, Moody's expects APAC data centre capacity will more than double by 2028.
"We forecast APAC data centre capacity to grow at a compound annual average rate of almost 20% through 2028, involving an investment of about $564 billion," Moody's said.
The ratings agency noted that China was the biggest data centre market in APAC. However, it added that ongoing tensions with the United States were likely to drive additional capacity to other countries in the region.
That could see more capacity demand in US ally Australia, which could fuel future growth for NextDC shares.
According to Moody's:
Concerns over data sovereignty have also led APAC governments to implement regulations around where data is stored, spurring providers to house data locally or within different facilities in certain countries.
As for what's likely to drive the 100% plus growth in APAC data centre capacity by 2028, Moody's cited "the increasing adoption of artificial intelligence and cloud technologies, cryptocurrencies, and a rising preference for outsourcing data computing and storage for efficiency and scalability fuel exponential growth in the sector".
Moody's added:
Hyperscalers dominate demand for new data center capacity and include large internet service providers, cloud and network service providers, and multimedia companies. As more AI-related products and services are developed, even more computing capacity will be required
Currently, Moody's noted, "There is a strong pipeline of over 4,400 MW under construction in key APAC markets, about 75% of which is in China, Japan, Australia and India."
Despite coming under some selling pressure over the past month, NextDC shares remain up 33% since this time last year.
