Global Data Centres: Prefer US Operators with Track Record of Stable Dividends
Chief Investment Office - Hong Kong21 Feb 2024
  • Positive on the US data centres space as stable profitability underpins rising dividends over the years
  • US data centres to register 11% CAGR from FY23 to FY30 as result of AI advancement
  • China’s data centres industry to grow 15% in FY24 amid stabilising domestic cloud businesses
  • Longer-term, the China public cloud market is expected to deliver 32% CAGR in the next five years
  • Expect US names to outperform Chinese peers given positive market conditions and dividend merits
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US data centres possess strong track record of stable dividends. In the 4Q23 earnings season, US data centres reported y/y growth in adjusted EBITDA ranging from 9% to 10% as result of higher rental rates. Looking ahead, we are bullish on this space given:

  • US data centres have consistently been increasing dividends as profitability is underpinned by stable net profit margins of 7-10%
  • The market is set to accelerate with AI advancement, with US operators seeing rising AI demand (in contrast, China’s data centres industry is hampered by the lag in AI commercialisation)

US data centres industry growth to hit 11%, buoyed by advancement in AI. According to Grandview Research, the US data centres industry is expected to register 11% CAGR from FY23 to FY30 (surpassing the 8-9% growth in FY21 and FY22) as a result of AI advancement. The largest carrier-neutral operator in the US stated that AI will account for 15% of data centres’ total addressable market (TAM) of USD140b in 2026. Moreover, research firm Dell’Oro is also predicting stronger data centres infrastructure growth in the coming years.

The US, being an early mover in AI development, has seen many of its software companies incorporating AI capabilities into their offerings since early last year. According to Preqin, US leads the way in AI investment, drawing USD26.6b in 1H23 (vs USD4b in China).

China’s data centres industry: Cautious optimism. The China data centres industry is expected to deliver 15% growth in FY24 and the overall subdued momentum is attributed to slower business demand for domestic public cloud service providers (who are major end-users of data centres). But longer-term, the China Academy of Information and Communications Technology (CAICT) believes that the China public cloud market will register 32% CAGR in the next five years and this supports the longer-term growth trajectory of data centres’ TAM.

We believe investor sentiment in this space will gradually improve given (1) Prevalence of a steady market outlook and (2) Operators’ commitment to deleverage (for instance, the largest carrier-neutral data centre operator in China is aiming to lower the net debt/adj. EBITDA for its China business to

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