“Demand for data centres is correlated to new product cycles rather than import tariffs,” he adds.
As the AI proponents point out, the demand for data centre computing and storage capacity is set to surge.
The next generation of reasoning AI models spend more time thinking about a problem, planning and breaking it down into a series of steps, akin to humans solving complex problems.
Koh explains: “Reasoning AI models use mathematical logic and rule-based decision-making in a structured manner to reach their conclusions. It spends time deliberating internally and ‘talking to themselves’, pondering over a long chain of thoughts. It tries different approaches to narrow down the best solution. It could backtrack if it realises it made a mistake. The usage of reasoning AI models reduces error and minimises the tendency for AI models to hallucinate.”
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As a result, the next generation of reasoning AI models requires vastly more computing time and power. Jensen Huang, CEO of Nvidia, estimates that they consume more than 100 times more resources than conventional non-reasoning AI models.
According to Koh, citing Huang, capex on computing infrastructure will reach US$1 trillion ($1.32 trillion) by the end of this decade.
Koh, citing estimates by McKinsey, notes that global demand for data centre capacity is projected to expand by a CAGR of 22% from 2023 to 2030, reaching an annual demand of 219GW.
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“The demand for AI-ready data centres, which provide high computational power and power density required for AI workloads, is expected to increase by a CAGR of 33%. 70% of demand is for AI-ready data centres by 2030. AI-ready data centres could be in a potential supply deficit,” he adds.
As other tech manufacturers fret over tariffs that the US government is imposing across the rest of the world, data centre operators are spared from this worry.
“Demand for data centres is correlated to new product cycles, rather than reciprocal tariffs imposed by the Trump Administration,” says Koh.
Keppel DC REIT, which operates a network of data centres in Singapore, among others, is set to enjoy a sustained increase in rental reversion into this year and the next due to tight vacancy, says Koh, who has a target price of $2.55 on this stock. There is new capacity from competing data centres, but they will only be available largely in 2027.
Keppel DC REIT, on the other hand, started seeing contributions from two data centres, SGP7 and SGP8, from 1QFY2025. The two data centres are designed for AI inference workloads with ultra-low latency connectivity and provide net property income (NPI) yields of 6.5%–7.0%. Koh says the acquisition is accretive to pro forma 1HFY2024 distribution per unit (DPU) by 8.1%.
Koh has a similarly bullish view on Digital Core REIT, the other pure-play data centre REIT here, with a target price of 88 US cents.
Digital Core REIT has a more diversified portfolio than Keppel DC REIT but has also been able to generate higher rental reversion for the majority of its portfolio in FY2024. It signed new and renewal leases representing US$74 million of annualised rent and generated a positive rental reversion of 4.3% in 2024. Citing the REIT’s manager, rental reversion is set to improve further to double digits this current fiscal year.
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Most recently, in March, DCREIT completed the acquisition of a 20% interest in a second fully-fitted freehold data centre in Osaka, Japan, from Mitsubishi Corporation for JPY13 billion ($119.6 million). The deal is expected to be accretive to pro forma FY2024 DPU by 1.8% and increase pro forma aggregate leverage as of Dec 24 from 34.0% to 37.3%.
While Mapletree Industrial Trust (MINT) owns other types of properties, it has been chalking up growth from an expanding data centre portfolio, now mainly in the US.
According to Koh, MINT intends to diversify into established data centre markets, including Australia, Japan, South Korea, London, Dublin, Frankfurt, Amsterdam and Paris.
MINT has the right of first refusal to acquire Mapletree Rosewood Data Centre Trust’s remaining 50% stake from sponsor Mapletree Investments. The trust owns 13 data centres across North America.
MINT suffered some sell-down in recent months over growing concerns that leases of certain data centres in the US will not be renewed. However, Koh, citing his own channel checks, says there has been a pick-up in leasing enquiries. San Diego, for one, is seeing growing interest due to power constraints at the core data centre hubs. Koh’s target price for MINT is $2.70.
