• What an exciting future lies ahead with Artificial Intelligence (AI). A future with a higher standard of living for many -- that's the prediction of experts. See McKinsey's article Economic potential of Generative AI: The next productivity frontier. • As GenAI applications become more sophisticated and widespread, the demand for computational power and energy resources is skyrocketing. This surge is driven by the need to process and analyze vast amounts of data, which in turn requires substantial investments in data center infrastructure. • How to invest in this part of the ecosystem? Are there Singapore instruments for that purpose? In an article on the SGX website, an analyst gives his take below .... |
Photo: Keppel DC Reit
By Pranay Yadav, a Senior Research Analyst at Mint Finance, a Singapore based research and consulting firm offering nuanced and deep insights on global macro and its impact on Singapore stocks, REITs, and ETFs.
Q: What has Generative AI got to do with Data Centres?
A: Generative AI (or Gen AI in short) thrives on data. More Gen AI means more data. More data equates to more data centres needed. Each click, each swipe, and each algo leap magnifies the demand for data centres.
Data creation is soaring; More data will be generated in the next five years than over the past 10.
To serve additional demand, data-centre capacity will need to grow at an 18.5% CAGR over the next five years.
AI workloads running servers represent a major demand driver, particularly for data centres with high performance computer offerings such as Hyperscalers.
Q: What is an efficient and a convenient way to invest into Data Centres?
A: Data centre REITs invest in properties including data-storage and server centres.
These serve as backbone to the tech sector. As such, data centre REITs are strategically positioned to benefit from the rapid expansion of the data centre market.
The growth of data centre REITs is driven by five primary forces
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Singapore’s REITs & Property Trusts market is Asia’s second largest behind Japan.
Home to 41 REITs & Property Trusts with a total market capitalization of around S$100 billion, the portfolio of S-REITS are broadly diversified in regions outside Singapore including the Asia Pacific, South Asia, EU, and US.
REITs are inversely correlated to interest rates because they often rely on debt for expansion.
Higher rates result in higher borrowing costs, and elevated cost of funds lowers profitability. Therefore, a potential reversal of interest rates bodes well for REITs.
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Q: How have data centre REITs performed relative to the overall S-REITs market? A: Among Singapore REITs with exposure to data centre properties, only Digital Core REIT (DCRU) and Keppel DC REIT (AJBU) have models focused entirely on data centres. |
To read more about DCRU and Singapore REITs market, please click hereto read the research note in full on Smartkarma.
For more insights on macro developments and its impact on various asset classes including Singapore listed assets, follow Mint Finance.
