NextDC, Goodman and DigiCo slide as Microsoft scraps data centre plans, Alibaba warns of a 'bubble'
Data center stocks like NextDC, Goodman Group, and DigiCo REIT have experienced a significant downturn in 2025. Here's why.
Source: iStock
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KEY POINTS
- Data center stocks like NextDC, Goodman Group, and DigiCo REIT have experienced significant downturn in 2025, with share prices dropping over 14% year-to-date
- Microsoft canceled ambitious data center expansion plans, and Alibaba's chairman Joe Tsai warned of a potential data center bubble, suggesting over-investment in infrastructure ahead of actual AI service demand
- Despite recent substantial capital raises and optimistic growth projections, these companies face investor skepticism, with NextDC remaining unprofitable and valuations now under scrutiny amid cooling market sentiment
Data center stocks like NextDC, Goodman Group, and DigiCo REIT have taken a nosedive in 2025, and further rattled by moves from Microsoft and Alibaba that raised doubts over the much-hyped AI data center boom.
These three heavyweights are down more than 14% year-to-date, with DigiCo down a steep 34% from its December 2024 IPO price of $5.00.
NextDC (red), Goodman Group (green) and DigiCo REIT (blue) year-to-date performance | Source: TradingView
While the market broadly sold off in late-February due to concerns about President Trump's tariff threats and economic jitters, these stocks have continued to tumble in wake of recent comments from the two tech behemoths.
Microsoft Pulls the Plug
On Wednesday, Microsoft quietly axed plans for ambitious new data centers 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.
This follows a February warning from the same analysts that unnerved investors when Microsoft canceled several U.S. leases. The latest pullback also signals a strategic shift, with the tech giant opting to pass on additional work from OpenAI.
Alibaba’s Bubble Warning
Alibaba’s billionaire chairman, Joe Tsai, added fuel to the fire at the HSBC Global Investment Summit in Hong Kong on Tuesday. He sounded the alarm on a potential data center bubble, warning that construction is outpacing real demand for AI services.
Tsai noted that tech giants, investment funds, and developers are racing to build server hubs across the U.S. and Asia, often without a clear customer base to back it up.
“I’m still astounded by the type of numbers that’s being thrown around,” he said. “People are literally talking about $500 billion, several hundred billion dollars. I don’t think that’s entirely necessary. People are investing ahead of the demand that they’re seeing today, but they are projecting much bigger demand.”
Recent raises
Ironically, all three companies tapped markets for cash just before the cracks showed.
DigiCo made its ASX debut on 13 December, 2024 after raising $1.9 billion at $5.00 a piece.
NextDC raised cash on two occasions last year, including:
In April 2024, the company raised $1.32 billion at $15.40 a piece. The proceeds were used to fast-track development and fit-out of key assets in Sydney and Melbourne, responding to “unprecedented” customer demand.
In September 2024, the company raised $550 million at $16.15 a piece. The funds target new data centre sites in Asia (e.g., Bangkok, Johor, and Tokyo), beyond its existing A$2.6 billion FY25 capex plan.
It also signed a $2.9 billion senior bank debt facility in November 2024
In parallel with its half-year FY25 result in February, Goodman Group announced a $4.0 billion raise to fund its 5GW data centre pipeline across Sydney, Tokyo and other hubs. The raise issued 119.4 million new shares, equivalent to 6.2% of the company's shares on issue, at $33.50 a piece (6.9% discount to last close).
Rich valuations
NextDC has been loss making in four of the last five years, only briefly turning a statutory profit of $9.2 million in FY22. Macquarie analysts forecast losses to balloon from $44.1 million in FY24 to $274 million by FY27.
Despite a seemingly perpetually loss making company, its EBITDA is forecast to grow from $204.3 million in FY24 to $283.7 million in FY27 —a steady compound annual growth rate of approximately 11.5%.
Through all of this, the market has never flinched and happy to slap a hefty valuation on NextDC thanks to surging data center demand. Its contracted utilisation outstripped capacity in 1H24 and 2H24, as shown below.
Source: NextDC half-year FY25 results presentation
The bottom line
Goodman Group and NextDC enjoyed sizeable rallies in 2023-24, fueled by the AI hype machine. A steep price tag isn’t a problem — until sentiment wavers. When it does, valuations can unravel fast, especially without traditional fundamental metrics like earnings and cash flow.
Though confidence has dipped, the cash is in hand, and their project pipelines are brimming. Now, they just need to prove to the market that the demand is more than hot air.
