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What do investors find most attractive about datacenters? One of the simple answers is customer lock-in. "When your contracts come to an end, your customers typically prefer to stay at your datacenter," said one asset firm exec.
The AI hypescycle is luring new investors to the datacenter market who see an opportunity to cash in on the burgeoning demand, and businesses that use datacenter services are being viewed as a captive market.
At the recent Datacloud Global Congress in Cannes, France, one of the keynote sessions covered the "creative" financing solutions being considered to deliver the capital needed to build ever more facilities.
One of those speaking was Natalia Akst, managing director for Macquarie Asset Management, who praised the financially attractive features of the datacenter market, saying there are high barriers to entry, and customers find it difficult to change provider once they have signed up.
Macquarie itself has been in the market for several years, acquiring a significant minority stake in European bit barn provider VIRTUS in 2022.
Demand for datacenter space is now at an all-time high in many regions because of the AI frenzy, as commercial real estate firm CBRE reported last year.
"When we look at infrastructure assets, we always try to find those infrastructure characteristics. First of all, it has to be mission critical and delivering essential services to society. It has to be useful," Akst said, describing what drew the company to invest in this area.
"Number two is stable cash flows. It's either contracted on a long-term basis or regulated, and those cash flows have to be predictable, ideally avoiding fluctuations, and the third one is high barriers to entry and low levels of competition," she added.
"When you think of datacenters, what we like about them is the barriers generally are relatively high. It takes a lot of capital, a lot of effort. It takes access to a pipeline of powered sites to develop a datacenter, so it's not something that anyone can just come and do from the street," Akst explained.
As The Register has covered before, building new bit barns has become increasingly difficult in some regions because of the shortage of suitable land and getting a site connected to the power grid once it has been secured.
However, this isn't putting investors off, as we reported late last year. And for those able to stump up the investment, one of the rewards is having what they see as effectively a captive market.
"When your contracts come to an end, your customers typically prefer to stay at your datacenter. There are some barriers for them to move on and shop around for a one-year discount elsewhere. So I think what we like about this asset class is that they're not easy to commoditize... there is little sort of price competition at a micro level, and the customers are quite sticky," Akst said.
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Earlier this year, Macquarie announced investments worth more than $17 billion to a pair of American bit barn businesses, with $5 billion going to Applied Digital to finance construction of facilities, with Aligned Data Centers raising more than $12 billion in capital to fuel its own expansion, led by funds managed by Macquarie.
Investment giant Blackstone is another notable backer, plowing £10 billion ($13.4 billion) last year into a massive AI data facility located in northeast England, billed as potentially the "biggest AI datacenter" in Europe once completed.
Yet some believe that all this frenzy of building may create an investment bubble.
Fabrice Coquio, Digital Realty's SVP and Managing Director for France, told The Register: "In the UK, in France, in Germany, you've got people coming from nowhere having no experiences… that have no idea about what AI and datacenters are really and still investing in them." He described this as "the expression of a typical bubble."
Also earlier this year, Alibaba Group co-founder and chairman Joe Tsai expressed concern at the level of money being pumped into construction, warning that it could exceed actual market demand.
"I start to see the beginning of some kind of bubble," Tsai said, noting that many projects are raising investment to build datacenters on spec, without even having a buyer or tenant lined up before proceeding. ®
