ASX data centre stocks tumble on DeepSeek fears
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The news: ASX-listed data centre stocks have tumbled in early trading, tracking a global selloff in the tech sector amid fears over a low-cost Chinese artificial intelligence model that could threaten the dominance of current AI leaders.
The numbers: Shares in data centre operators Megaport and Next DC are down 7% and 8.2% respectively, while HMC Capital (-6.24%) owner DigiCo Infrastructure REIT lost 11.5% and digital infrastructure investor Goodman Group fell 7.4%.
The context: The falls locally tracked a global selloff overnight after Chinese startup DeepSeek last week launched a free AI assistant that it says uses less data at a fraction of the cost of incumbent services.
The app has overtaken US rival ChatGPT in downloads from Apple's app store, sparking a 3% decline in the tech-heavy Nasdaq, with chipmaker Nvidia tumbling nearly 17% to mark its biggest one-day loss in market capitalisation.
Citi analysts said the emergence of the open-source DeepSeek R1 model raises the key question of whether it could impact demand for data centre capacity and therefore demand for local players Next DC and Megaport.
What they said: “We do not expect it to impact near-term contracts/demand for NXT and would expect hyperscalers to continue to deploy capacity to meet customer demand and see the Stargate project as well as Meta's ~60% yoy increase in capex as signs that AI build-outs are not slowing,” the analysts said in a note, but acknowledged that potential risks exist to longer term data centre capacity.
They also expect Goodman’s portfolio to remain well positioned with newly developed data centres positioned for the ever-changing environment, while “development can remain more agile and flexible to the evolving technological and demand changes in the AI environment”.
The source: Citi research
