Data centres have taken off in recent years in line with the ever increasing amount of data that is being generated.

If you’re thinking of big warehouse like buildings (typically in the middle of nowhere) housing servers, you’re not far off the mark. But it’s not just for firms to store data but also to meet consumers’ use of data.

Data centres make email, social media, online shopping, Netflix and anything else in the digital world possible.

Last year Cube Capital partner Hani Iskander told Stockhead the sector grew at a compound annual 18 per cent rate in the last decade and it will continue to grow.

 

Who’s in the sector?

A common perception is that the big tech companies like Facebook and Google are investing the most in this sector. That’s true, but they are not alone – the ASX is home to a handful of players in this space.

5GN Networks (ASX:5GN) made several acquisitions last year in the Melbourne and Sydney CBDs near many of its clients which are medium-sized professional services firms.

While 5GN is a business to business (B2B) telco primarily, CEO Joe Demase told Stockhead last year everyone was building data centres.

“No one’s turning around and saying ‘I’ve got excess capacity in my data centre’, and it’s the same with cloud services,” he said.

DXN (ASX:DXN) has also been opening data centres. Its flagship centre is at Sydney Olympic Park and at key capacity will have IT load of 6 million watts.

It is also supplying components for modular cable landing in the Pacific Ocean to improve connectivity between Sydney, Auckland and Los Angeles.

 

The biggest ASX stock is a large cap — but it’s not the biggest player globally

There is also large cap NextDC (ASX:NXT). Its clients include Oracle, Optus and Amazon Web Services and it has data centres in five major capital cities.

It has continued to invest in more data centres, getting approval for its latest (which is its third in Sydney) just in time for Christmas.

In the last five years NextDC has gained 250 per cent, although it has stalled in recent months. Analysts such as JP Morgan’s Eric Pan anticipate pricing pressure as more companies enter the industry.

“With increased competition, we worry about industry pricing as a tremendous amount of capacity is expected to come to market over the next couple of years,” he said in his latest report on NextDC.

But NextDC are not the largest provider of Australian data centres. That title belongs to California headquartered Equinix (NYSE:EQIX), which operates 17 of them, according to JP Morgan.

Other major providers include IBM and Fujitsu as well as start ups AirTrunk and Canberra Data Centres.

 

Think of the planet

But naturally data centres consume a lot of power. While presently the figure is only 1 per cent it has been warned this could rise to 20 per cent by 2025.

In recent days the International Energy Agency (IEA) said we shouldn’t worry — yet. Electricity demand will stagnate for the next couple of years even as workloads increase.

The IEA believes data centres will not be consuming more energy because they will become more efficient.

This efficiency is not just in respect of the centres’ operations and design but their locations. New centres are generally in locations with less risky weather and stable electricity supplies.

None of the companies mentioned in this article have yet responded to Stockhead’s requests for comment.

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