The data centre boom is real. But you might be investing in the wrong players

Every investor tracking ASX data centre stocks knows the theme is having a moment. The capital is flowing, the headlines are constant, and the stocks are well-covered.

The question Emanuel Datt is asking is whether investors chasing that theme are actually looking in the right place.

His answer is: mostly not.

Datt, founder of Melbourne-based Datt Capital, argues that the companies drawing the most attention, the data centre owners and operators, are not where margin concentrates. The more compelling opportunity, he says, sits one layer below.

Not all data centre exposure is equal

That comes down to where each business sits in the value chain. He identifies three categories of ASX exposure to the data centre buildout.

The first is asset ownership: digital real estate investment trusts (REITs) and data centre operators. These businesses run on yield-driven return logic with long development cycles and sensitivity to interest rates. They are a structurally different proposition from what he is focused on.

The second and third categories are where his attention sits: specialist contractors and equipment distributors. These are the businesses doing the physical work of building and fitting out data centres and supplying the equipment that makes them run.

He makes the point without qualification.

“The companies attracting the most attention, the data centre owners and operators, are not necessarily where margin concentrates,” he says.

He adds that for Australian investors, the ASX does not offer the semiconductor and memory exposure that has driven returns in the United States. What it does offer is access to the physical infrastructure layer that supports data centre construction and fit-out. This separates disciplined positioning in Australian small cap equities from simply chasing the theme, he says.

The picks-and-shovels logic

The framework he applies is familiar to anyone who has invested in resources. When capital surges into a sector, the businesses supplying the inputs often capture more consistent margin than those holding the end asset.

Building a data centre requires specialist electrical contractors, fit-out expertise, and technology distribution networks that are not easily commoditised. The constrained supply of qualified operators at this layer creates pricing power that feeds directly into earnings.

“The picks-and-shovels framework is well understood in resources investing, and the same logic applies to the ASX data centre theme,” Datt says.

“When a sector experiences a surge in capital deployment, the businesses supplying the inputs often capture more consistent margin than those building or holding the end asset, because their competitive position rests on specialist capability rather than balance sheet scale.”

A small cap entry point

Valuation shifts at the smaller end of the ASX have sharpened the opportunity. He notes that concentration in the top 20 stocks is creating an appearance of index-level stability that masks significant divergence beneath the surface.

Many small and mid-cap names have derated materially through May and June 2026, including businesses with sound fundamentals and no deterioration in their underlying earnings. Investor risk appetite has narrowed toward large cap liquidity and certainty, compressing valuations indiscriminately.

For him, that is exactly the condition that makes small cap investing most productive.

“Sector-wide selling that compresses valuations indiscriminately creates entry points in businesses whose competitive position remains intact,” he says. “The data centre adjacents sit within this dynamic, with the theme well recognised at the index level but the execution-level opportunity at the small cap tier requiring category-level analysis.”

Where the discipline lands

For investors building a position in ASX data centre stocks, his conclusion is clear: category selection within the value chain matters more than sector selection alone.

The construction and equipment supply tier offers a more defensible margin profile, lower capital intensity, and a more direct connection between activity levels and earnings than the asset ownership layer.

The data centre buildout is a genuine, multi-year structural theme. But genuine themes attract crowded positioning, and crowded positioning compresses returns at the obvious entry points.

The investors who do well from this cycle will not necessarily be the ones who identified the theme first. They will be the ones who understood where, within the value chain, the earnings actually land.