Feature Stories | 10:05 AM
Updated sector analysis and forecasts suggest fears of the demise of data centre stocks and the GenAI revolution are overblown.
-BigTech's March quarter results dismiss investors' AI oversupply concern
-Analysts dissect the demand/supply dynamic for data centres
-APAC data centre growth outpaces global growth
-Australia a geopolitically attractive destination for data centres
-Local favourites to invest in exposure
By Danielle Ecuyer
DeepSeek R1 and the Infrastructure Reset
The durability of the AI trade and the capacity of existing infrastructure, particularly data centres, to support generative AI, such as large language models, were tested on January 27, 2025, when China's DeepSeek unveiled its R1 model: an open-source LLM that matched or outperformed leading Western models like OpenAI's GPT-4 at a fraction of the cost.
Reportedly developed using less than US$6m in computing resources, R1 challenged the prevailing belief that state-of-the-art AI demands massive capital and high-end infrastructure, such as super-sized data centres.
Its release triggered a sharp sell-off in tech stocks, with Nvidia suffering a historic single-day loss of -US$593bn in market capitalisation. Other major tech firms, including Microsoft, Alphabet, and ASML, also experienced significant declines.
Concerns about data centre infrastructure spending, combined with equity raisings from Goodman Group ((GMG)), several high-profile transactions, and the listing of DigiCo REIT ((DGT)), prompted profit-taking in Australian data centre companies, with the narrative shifting to risks around demand and potential overcapacity in the sector.
Market sentiment rebounds post-March quarter earnings
By May, with considerable developments reshaping the AI landscape including rising tariff and trade tensions between the US and China, the major US tech companies through their latest quarterly earnings have, for now, eased market concerns.
The Big Tech March quarter earnings reports were on balance better than feared and, homing in on the specific results from the hyperscalers, fears over reduced investment spending, growth in GenAI and associated cloud-based infrastructure proved to be ill-founded.
UBS estimates the latest capital spending as highlighted in the updates from Microsoft (Azure), Amazon (AWS), Meta and Google (Google Cloud Services) is US$330bn in 2025, a rise of 34% on 2024.
Morgan Stanley noted Microsoft reported one of the strongest quarters in "recent memory" with Azure growth increasing to 35% on a year previously, well above guidance at 31%-32% and an acceleration over the 31% growth in the previous quarter.
The analyst estimates Azure AI growth has risen to over 215% year-on-year and the company flagged ongoing issues dealing with supply versus demand imbalances post the June quarter.
Meta offered a robust result pointing to AI-driven feed and recommendations underpinning improved engagement.
While Amazon's AWS is spending up on more GenAI efficiency enablers, coding, and sales assistants to improve teams' efficiency with the same or fewer headcount.
AI mentions accelerate in 2025 reporting season
Checking in with ChatGPT on the latest updates on GenAI by companies globally, the service offered the following:
AI Mentions Surge in 2025 as Companies Ramp Up Deployment
In 2025, a dramatic rise in corporate adoption and disclosure of artificial intelligence has reshaped how businesses operate and communicate with investors.
According to recent industry analyses, over 78% of global companies now use AI in at least one part of their operations, with adoption accelerating across IT, customer service, and marketing functions.
The impact is particularly visible in financial reporting.
More than 320 companies referenced AI in their annual reports this year; a 152% increase from 2024.
Among Fortune 500 firms, over half (281 companies) now cite AI not only as an operational tool but also as a material risk factor, up from just 49 the previous year.
This momentum is being driven by a sharp rise in generative AI usage, which has more than doubled year-on-year, with 71% of organisations employing such technologies in 2024.
Industry leaders in finance, healthcare, manufacturing, and retail are integrating AI to boost productivity, automate workflows, and enhance personalisation.
While AI's benefits are widely touted, the shift also raises questions around data ethics, transparency, and displacement.
Still, corporate disclosures suggest the technology has become integral to strategic planning, no longer a fringe innovation but a mainstream engine of growth.
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