Is it time to get bullish on beaten up data centre stocks: NextDC, Goodman Group and DigiCo

Data center stocks like NextDC, Goodman Group, and DigiCo REIT have faced heavy selling pressure in 2025, with year-to-date declines exceeding 10% and DigiCo plunging 36%.

NextDC (red), Goodman Group (green) and DigiCo REIT (blue) year-to-date performance | Source: TradingView

The downturn was sparked by Trump’s tariffs and macroeconomic uncertainty, compounded by two major developments:

• Microsoft axed data centre expansion plans. In mid-March, Microsoft cancelled plans for ambitious new data centres across the US and Europe, scrapping projects that would have delivered around 2 gigawatts of power, according to TD Cowen analysts. They pin the retreat on an oversupply of AI-ready computing clusters flooding the market.

• Alibaba's Chairman warns of a data centre bubble. Alibaba’s billionaire chairman, Joe Tsai, warned that construction of data centres is outpacing real demand for AI services. He flagged that tech giants, investment funds and developers are rushing to build hubs across the US and Asia, without a clear customer base to back it up.

However, recent corporate updates paint a more optimistic picture, challenging the bearish sentiment.

Mag-7 beat earnings, reaffirm AI capex

The recent earnings from Magnificent 7 names like Meta, Alphabet, Amazon and Apple beat market expectations and reaffirmed significant AI investments:

• Alphabet reaffirmed its FY25 capex guidance of ~$75 billion, with a focus on AI infrastructure. CEO Sundar Pichai noted AI Overviews (AI-driven search summaries) reached 1.5bn monthly users, enhancing ad effectiveness. AI services contributed significantly to cloud growth, with analysts noting Google’s ability to offset search declines with cloud revenue.

• Amazon guided to at least $100 billion in FY25 capex, with the majority for AWS and AI infrastructure. CEO Andy Jassy highlighted “significant signals of demand” for AI services, noting AI services growing over three times faster than AWS’s early years.

• Meta raised its FY25 capex guidance to $64-72bn (from previous $60-65bn), driven by AI data center investments and higher hardware costs due to tariffs. CEO Mark Zuckerberg highlighted Meta AI’s growth, with nearly 1bn monthly active users. AI tools improved ad targeting and creative processes, driving a 7% increase in conversions for businesses using Meta’s image generation tools.

These updates lifted local data center stocks, with NextDC and DigiCo surging 4.2% and 6.3%, respectively, on April 30 following Meta and Alphabet’s earnings.

NextDC's order book surge

NextDC (ASX: NXT) provided a robust utilisation and order book update on Tuesday, including:

• Victoria’s data centers led with 114MW in contracted utilisation (161% of 70.5MW built capacity as of December 31, 2024).

• Group-wide contracted utilisation rose 30% to 228MW, nearing Goldman Sachs’ full-year forecast of 229.2MW.

• The forward order book jumped 54% to 127MW, a record for the company, with new contract revenues starting in FY27.

• FY25 capex guidance increased by $100m to $1.4–$1.6bn.

For context, Goldman Sachs projected FY25 utilisation at 229.2MW, and NextDC’s current 228MW is nearly at this full-year target with three months remaining.

NextDC shares opened 3.7% higher on Tuesday, rising throughout the day to close up 6.3%.

However, peers lagged, with DigiCo flat and Goodman Group up just 0.1%, suggesting the market remains cautious and evaluates data center stocks on a company-specific basis.

The bottom line

NextDC’s update countered bearish pressure from Microsoft’s canceled data center plans and Alibaba’s bubble warnings, showcasing a robust forward order book that signals strong demand and potential earnings upgrades. This fueled a sharp rebound in its share price.

However, the muted response from peers like DigiCo and Goodman Group indicates persistent market caution, with investors evaluating data center stocks on a case-by-case basis.