Questions asked on ChatGPT or video made on Synthesys is benefiting companies such as NextDC and Goodman Group, as the impact of generative AI flows from the cloud into the physical world.
As well as turbocharging the fortunes for the world’s biggest companies like Nvidia, Amazon and Alphabet, AI is transforming the downstream firms that build and own the infrastructure housing the high-performance chips that power AI’s interactions.
NextDC chief executive Craig Scroggie inside a Sydney data storage centre.Credit: James Brickwood
The AI boom has clearly landed for the country’s largest listed operator and owner of data centres NextDC, which said on Thursday it is raising $1.32 billion from investors to accelerate expansion in Sydney and Melbourne, as surging demand prompts it to bring forward capital investment.
“NextDC continues to see significant growth in demand for its data centre services underpinned by powerful structural tailwinds,” chief executive Craig Scroggie said.
“Amid this backdrop, we have decided to bring forward the development and fitout of key assets in Sydney and Melbourne to ensure we are able to meet this growth in demand, and continue to support our customers.”
The company is offering investors a one-for-six entitlement at $15.40 a share – a 7.8 per cent discount to its Wednesday closing price. Along with existing capital in the company, it intends to spend the funds on three data centres in Sydney and one in Melbourne.
Like its digital currency counterpart Bitcoin, generative AI needs huge amounts of electricity and specialised data centres to house its circuity and cooling units.
Scroggie said NextDC’s new centres would require 10 times the amount of power used by the current generation of data centres, as well as new cooling methods. Electricity grids would need to be expanded and dedicated data centres built to service AI’s hunger for power and computing capacity.
Investment house Morgan Stanley estimates that in just three years from now, generative AI will chew up the equivalent of 75 per cent of the total power that was used by the world’s data centres in 2022. If AI really takes off, the firm estimates its demand will equal 116 per cent of 2022 usage.
“The volume of annual power projects that will need to be developed to support the growth in GenAI is no less impressive than data centre growth,” Morgan Stanley said in a recent paper, Powering GenAI: How Much Power, and Who Benefits?
Around the world, it expects “growth upside for power providers and data centre infrastructure stocks,” but does not expect AI’s energy demands to move the needle much for regulated utilities.
David Dzienciol, NextDC’s chief commercial officer, said AI data centres come in two types: “training” facilities that store huge amounts of data where AI applications learn, and “inference” facilities that deploy the AI for end users.
“Almost every single vertical market is being affected in a positive way by the ability to leverage generative AI to drive business efficiency, new products, software development, or augmentation,” Dzienciol said. “We don’t believe this is a fad that will come and go. It’s quite remarkable to see the pace of change.”
Data centres are measured by power capacity, rather than square metre size, and large facilities can be more than 100 megawatts – enough output to light up 60,000 homes for a day.
“The rise of generative AI has had a major impact on the [data centre] sector, resulting in several data centre players re-evaluating how they strategise data centre development,” commercial agency Cushman and Wakefield says.
NextDC is not the only beneficiary. From a valuation of $3 billion four years ago, Macquarie Asset Management and PSP Investments’ data centre operator Airtrunk is now worth up to $14 billion. Industrial warehouse behemoth Goodman Group is also aggressively chasing expansion.
Chief executive Greg Goodman told investors in February the real estate trust was advancing its data strategy – “securing power and planning, commencing infrastructure and continuing to work with customers on optimal delivery models that suit their requirements.”
The company plans to build a 126-megawatt campus on the former Castrol headquarters in Sydney, where it had previously intended to put three warehouses, replacing them instead with two three-story data centres and an associated 5558-square-metre office.
“The design of data centres will need to change as well; as the rack densities will increase, so too will the intensity of cooling technologies,” Cushman’s recent report, 2024 Global Data Centre Market Comparison, says.
Goodman’s large 4 gigawatt global “power bank” across 12 major world cities would largely be built by converting existing warehouse and brownfield sites, analysts at investment bank Citi said.
Not surprisingly, AI’s hyper expansion is raising questions about its energy-intensive impact on the environment. But Morgan Stanley’s analysts believe those concerns are overstated.
“Contrary to the consensus view, we believe the net sustainability impacts of GenAI are likely to be positive – the impact to global carbon emissions is likely to be small, while the sustainability benefits of GenAI are likely to be large,” they said.
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