Australia | 10:54 AM
The global AI infrastructure boom is colliding with real-world constraints, forcing NextDC to issue a shock profit warning last week.
- The US$31.6trn global AI infrastructure investment boom faces growing constraints
- Australia's data centre expansion confronts power shortages and community opposition
- Goldman Sachs forecasts a widening gap between Australian data centre demand and supply
- NextDC's M3 Melbourne power delays trigger a dramatic FY27 earnings downgrade
- Views diverge sharply on NextDC's valuation, debt risks and recovery prospects
By Danielle Ecuyer
Ed Yardeni: “The AI rollercoaster may be hitting speed bumps, but that will help keep it on a steadier path.”
Setting the macro stage for data centres
What may or may not transpire to be the biggest global infrastructure build-out history has ever witnessed has hit the skids, or at least a few traffic bumps for the time being.
For context, PwC commissioned Oxford Economics to model data centre capital expenditure across a footprint of 46 countries and regions which are expected to represent the major share of digital infrastructure spending.
Data centre spending is anticipated to attract US$31.6trn of capex globally through to 2050, with an upside case of US$50trn.
“Although cross-era comparisons are imperfect, those figures are orders of magnitude larger than either the combined amount for UK and US railway construction or the cost of the internet build-out.”
Inside credit and equity markets, AI-adjacent infrastructure, usually associated with data centres and, more recently, neo-clouds, is now being subjected to a lot more scrutiny. The direct consequence has been a swift fall from grace.
As Ed Yardeni explained on CNBC, the bond vigilantes have put the handbrake on the credit markets for AI-related spend, most notably through the repricing of debt for some of the riskier companies and prospects in the market.
Think CoreWeave, where the yield on unsecured bonds spiked to junk status, above 15%.
The same observation applies to equity markets. When asked to draw a line over the Firmus prospectus recently, institutional investors responded in the negative amidst numerous questions about the touted financials.
As explained by Yardeni, “We view investors' growing concerns about the AI boom as good news. Financial, social, political, and physical constraints should reduce overinvestment risks and keep the boom on a sustainable path.”
Australia’s data centre and AI build-out is not immune to offshore trends across the major levers which are impacting data centre developments.
The factors are multifaceted, including funding, cost of funding, demand/supply dynamics, as well as a social licence to operate, given the scale of the infrastructure, which comes with its own issues, including power supply, water usage and other potential adverse impacts, including noise, or “reported humming”.
From the US to Japan and Norway, community pushback has impacted data centre build-outs and has become a politically charged issue, particularly in the runup to US midterm elections.
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