Sizzling Valuations: Asia’s Data Centre Sector Booms Amid AI Demand

The Asia-Pacific area is quickly becoming as a popular destination for international investors seeking profitable prospects in the expanding data centre sector. Data center operators are commanding skyrocketing valuations, frequently exceeding the standards of other infrastructure sectors internationally, due to the surge in demand for services powered by artificial intelligence (AI). Notwithstanding obstacles such as inadequate infrastructure, the sector’s growth trajectory continues to garner significant attention, indicating a promising future for the area.

The Appeal of Asia-Pacific Data Centres

The foundation of contemporary digital infrastructure is data centers, which house vital computer servers and data storage devices. They allow businesses to handle and store enormous volumes of data, a requirement that has increased dramatically as a result of developments in cloud computing and artificial intelligence. In the Asia-Pacific area, where a still-emerging industry is currently trying to stay up with economic and technical advancements, this demand is especially noticeable.

The recent purchase of Australian data center provider AirTrunk by a consortium led by Blackstone is a prime example of the industry’s potential. At more than AUD 24 billion ($15.58 billion), the purchase established a bar for valuation that was more than 20 times the target’s projected core earnings. Despite the hefty entry prices, these high multiples show that investors are confident in the sector’s future.

High Valuations: A Testament to Growth

Investors ready to pay premium valuations are still drawn to deals in the Asia-Pacific region. For example, companies such as Singapore Telecommunications (Singtel) and BDx Data Centers have expressed interest in Indonesia’s NeutraDC, a data center division of Telkom. Due to its aggressive development strategy to reach 500 megawatts (MW) of capacity by 2028–2030, up from the 60 MW anticipated by the end of 2024, analysts estimate NeutraDC’s valuation to be more than 20 times core profits.

Australia’s HMC Capital recently increased the size of its DigiCo REIT’s initial public offering (IPO), valuing the company at AUD 2.75 billion, in yet another historic deal. DigiCo is positioned at 26 times projected profits in the offering, which is scheduled to launch on December 12. This is much higher than the typical market-wide multiples of about 16 times for global private infrastructure deals.

Investors’ faith in the revolutionary power of data centers is demonstrated by their readiness to pay these premiums. “Valuations of data center assets are reflective of the rapid growth currently being experienced by the sector, driven by large orders from hyperscale customers,” said Manjit Balgir, head of Bank of America’s Asia telecom and digital infrastructure division.

Execution Challenges and Regional Disparities

The data center business in Asia has clear development potential, but there are hazards involved. Significant obstacles are presented by the region’s infrastructure problems, which include unstable power sources and inadequate connectivity. Operators’ capacity to consistently supply the rising demand may be impacted by execution concerns, especially in emerging economies.

Because the market is still in its infancy, a single gigawatt contract can quadruple or triple a data center’s capacity, as KKR director Projesh Banerjea pointed out. However, it takes careful planning and a large financial commitment to scale operations in areas with inadequate infrastructure.

Gilles Chow of CPP Investments underlined how crucial dependability is to fulfilling these commitments. He pointed out that “tenants will become much more critical of reliability on the actual delivery of data centers,” emphasizing the necessity of robust and scalable solutions.

Many investors are nevertheless hopeful about the sector’s long-term prospects in spite of these obstacles. The Asia-Pacific data center sector will continue to be a strong growth story in the medium term, according to Charlie Wilson, head of Asia M&A and private equity at the law firm Sidley Austin, even though growth may slow down a little as capacity comes online.

AI and Sustainability Drive Demand

One of the main factors driving Asia’s demand for data center capacity is the spread of AI technology. Both nations and businesses are vying to construct infrastructure that can support AI applications, which demand massive amounts of processing power and storage. This tendency is reflected in the rise of hyperscale data centers, which are enormous structures built to handle immense cloud and artificial intelligence workloads.

Furthermore, sustainability is increasingly playing a crucial role in the development of the sector. In response to worries about the industry’s environmental impact, investors and operators are putting more effort into creating environmentally friendly and energy-efficient facilities. This is in line with worldwide trends, where sustainability is becoming a crucial distinction for companies as well as a legal necessity.

The Future of Data Centre Sector in Asia

As demand and capacity continue to close the gap, the Asia-Pacific data center sector is expected to rise steadily. Prominent deals such as the DigiCo REIT IPO and the AirTrunk acquisition demonstrate the industry’s attractiveness to institutional and private equity investors. To reach its full potential, the sector must overcome infrastructure constraints and execution issues.

The emphasis will probably move in the upcoming years to resolving these bottlenecks and guaranteeing dependable service delivery. Data center operators in Asia are in a unique position to play a pivotal role in facilitating the transformation of industries through artificial intelligence and digital transformation, thereby solidifying their place in the global digital economy.