Australia | 11:30 AM
CommBank's transition to the cloud is symbolic of the systemic shifts across enterprises as they position in the cloud for the AI era.
-AI ‘bubble’ fears and why today’s market looks different from 1999
-Cloud migration, CommBank, and the drivers of enterprise demand
-Power, regulation, and capacity: Australia’s growing data centre challenge
-Neoclouds and CoreWeave: new players reshaping AI infrastructure economics
By Danielle Ecuyer
AI bubble has become the prevailing market narrative
Before examining the composition of Australian data centre companies and recent updates, it is worth revisiting the narratives around AI, technology stocks, and valuations.
Arguments supporting a Dot-Com style crash are well cited in mainstream media, but at FNArena we draw on research from major financial institutions to frame the discussion.
Ed Yardeni of Yardeni Research recently posed the question: “Is there a Bubble in Bubble Fears?”
Google Search trends show queries for “AI bubble” spiking from virtually non-existent in mid-September to a peak by October 2. Yardeni suggested today’s technology-related stocks “have less air than the one during 1999”.
Currently, the S&P500’s IT and Communication Services sectors account for 44.9% of market capitalisation and 37.4% of forward earnings, versus 40.7% and 23.8% in the 1999–2000 bubble. Concentration is high, but earnings support is stronger.
Morgan Stanley strategist Michael Wilson argues the AI capital investment cycle that began in 2023 marks a “new era for equity investors”.
He believes payoffs from these mega-trend investments will come in time, with stocks already signaling “trust me—it’s not a question of if, but when”.
Wilson views April 2025 as the trough of the US rolling recession since 2022, coinciding with a slowdown in AI spending. Earnings and valuations bottomed at the same time.
He believes consensus earnings forecasts for 2026 remain too low.
His contrarian view is that a higher inflationary era will underpin equity valuations via lower equity risk premiums. While US stocks appear expensive on price-to-earnings ratios, higher nominal GDP and earnings growth with inflation provide valuation support.
Wilson also highlights median large-cap free cash flow yields are nearly three times higher than in 2000, while margins and profitability appear much stronger.
“Free cash flow generation, operational efficiency and strong profitability are all characteristics of a higher quality index than we saw in the late 1990s.”
Equities and gold remain key inflation hedges.
Australia’s narrower AI exposure, so far
Australian investors face a more limited universe of AI-linked stocks, particularly data centres and companies such as Macquarie Group ((MQG)) that invest in them.
Jeff Bezos recently highlighted the breadth of AI’s impact, suggesting it will touch “every company in the world” and boost both quality and productivity.
Locally, more companies are reporting how AI functionality is being embedded into their operations. Morgan Stanley highlights Anthropic’s Economic Index, which tracks Claude usage across US states and industries. As of September 2025, directive automation rose from 27% to 39% of conversations in nine months, and to 77% for enterprise customers.
Extrapolating Anthropic’s work, Morgan Stanley estimates AI adoption could add US$920bn in US pre-tax profits for the S&P500, with a long-term value of US$13–16trn.
Analysts draw two conclusions: the pace of improvement will be non-linear and use cases will involve both augmentation (AI complementing human tasks) and replacement (automation and robotics), with the latter expected to be more of a mid-2030s development.
While the AI story still has a long way to unfold, the immediate race is to build the infrastructure —data centres— that will underpin the computational power needed to support large language models and the next phase of technological evolution.
CommBank exemplifies major structural trends
As evidenced this week, the transition of enterprises to the cloud is still progressing. CommBank ((CBA)) is Australia’s first bank and one of the largest global banking transitions to the cloud, managed by Amazon’s AWS.
The transformation was highlighted by the bank’s group executive for technology as “a cornerstone for our enterprise transformation” and “innovation is faster on the cloud,” he told the AFR.
The announcement follows a partnership with OpenAI in August, while the bank’s data are centralised in a “data lake” run on a Snowflake system in AWS.
CommBank demonstrates two major forces driving demand for data centre capacity: the staged, ongoing shift of enterprises to the cloud, and the sharp rise in demand for AI-centric infrastructure, which requires immediate storage and compute rather than phased rollout.
Implementing large language models is not staged; capacity is needed upfront, often referred to as the “everything, everywhere, all at once” model.
How the Australian data centre trend is evolving
Data centre operators are balancing both demands, building more infrastructure to meet rising requirements, while also managing customer-specific needs that directly affect earnings.
Cloud migrations require heavy upfront capex, with earnings booked over time, whereas AI workloads accelerate income as contracts are realised.
At a macro level, Macquarie points to regulatory changes at both federal and state levels supporting a commitment to the OpenAI Stargate Global deal and to government data centre capacity growth.
A case in point is Canberra Data Centres (CDC), 49.75% owned by Infratil ((IFT)), as noted in a recent company update, see https://fnarena.com/index.php/2025/10/03/infratils-digital-decarbonisation-drive/
"This business is gaining from the Federal Government’s increased backing of digital infrastructure and is progressing a 200MW high-density data centre project located south-east of Perth’s CBD.
The facility is strategically positioned to support AI and security workloads linked to AUKUS defence cooperation, leveraging its secure infrastructure and close proximity to the Henderson Naval Base."
The analyst estimates 200MW to 750MW of market demand. Rising AI-driven capacity reflects innovation and new data centre reference architectures. Hyperscalers like AWS rely on operators for capacity that determines “time to market” for AI tools and products.
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