One area of the market that has been booming over the past 12 months has been artificial intelligence (AI) stocks.
The good news for investors is that there are plenty of ways to gain exposure to the AI megatrend on the ASX.
One way is through data centres, which are an integral part of the AI ecosystem. Without data centres, there is no way for ChatGPT to work its magic.
But which ASX AI stock is a buy right now? Let's see what Goldman Sachs is saying about one option.
The stock to buy according to the broker is Digico Infrastructure REIT (ASX: DGT).
It is a data centre-focused REIT with an initial portfolio of 13 properties that it will own, operate, and develop in tier one and tier two locations across Australia and North America. These properties are currently billing 35MW of capacity and generating $97 million of EBITDA on an annualised basis.
However, Goldman Sachs notes that the existing portfolio has the capacity to increase c.7x to 238MW of capacity, which it estimates could generate $496 million of EBITDA per annum.
According to the note, the broker feels that the company's shares have a compelling valuation, particularly when compared to peers. It said:
DGT offers exposure to global data centre growth – an attractive and increasingly supply constrained market – with a differentiated approach that we believe can create significant long-term value. We also see current valuation as compelling, given that when factoring in the CHI1 earnings that DGT has paid for upfront, it trades on an underlying FY25E EV/EBITDA of 24.6X vs. global peers on 25-29X and its closest peer NXT.AX (Buy) on 44X (albeit 24X when factoring its longer dated development pipeline).
The note reveals that Goldman has initiated coverage on the ASX AI stock with a buy rating and $5.80 price target.
Based on its current share price of $4.45, this implies potential upside of 30% for investors over the next 12 months.
It also expects a 2.5% dividend yield in FY 2025, increasing to 4.5% in FY 2026.
Commenting on its buy rating, the broker said:
We are bullish on global data centre growth, driven by a combination of continued cloud and AI-led demand for digital infrastructure assets with global installed data centre capacity forecast to grow by 15.9% CAGR (2024-27E) according to the company. DGT is currently exposed to what we believe are two of the most attractive markets, the US & Australia – which are being supported by a favorable supply/demand environment as an acceleration in hyperscaler AI demand increases the requirements for more compute capacity, driving pricing growth.
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