NEXTDC's Craig Scroggie is spending $1bn on an AI-fuelled future

Craig Scroggie: It's great to be here. Thanks, Ally.

So that's some indication.

Craig Scroggie: I can't say which particular clients. Many of our customers have very, very significant or stringent security needs to protect who they are and their infrastructure. But we obviously support the largest cloud computing companies in the world, and the services that we are providing obviously are instrumental in helping secure information locally in Australia. It's not hosted in the US. When people talk about cloud computing, the cloud is right here in Australia and it sits in a data centre that we build and operate for those companies.

Craig Scroggie: Well, the overall infrastructure business that we are building is very long-term in nature. The asset life for a data centre is about 40 years. So the data centres that we built over a decade ago are producing significant operating cashflow today. And every time we get to the end of filling a first-generation data centre, we start building the second and then the third, and they're doubling in size every few years. So Moore's Law, in 1967, Gordon Moore wrote a white paper, the founder of Intel, about the price performance doubling of integrated circuits. And every 18 to 24 months, that would be something that would be true.

A really good example is if you think about a computer that you used to run in your office if you shut down your on-premise data centre and move it to a co-location data centre like the one we build, your energy costs will be lower because it'll be significantly more efficient. So it's like taking 30 cars off the road and putting 30 people in one bus. So there's a lot of energy saved as a result of consolidating people's compute requirements. 

So when we think about energy and sustainability, it's such a huge area of focus because over the course of the next five to 10 years, we are going to have to find a path to more solar, more renewable cost-effective battery storage for energy, and not all the infrastructure is in the network in Australia today that we're going to need.

Craig Scroggie: You will have seen all the hype around AI and people are losing their minds. I mean, the NVIDIA company performance and share price... 

Craig Scroggie: They're staggering numbers and their free cash flow! Just the size of the business PCP is absolutely staggering. This is not new though. They've been working on this for over a decade, but what we're seeing really is that large number doubling, the ability to be able to have these GPUs playing a very significant role. 

From our point of view, that technology requires a higher density per square metre, which means our data centres need to have more power and more cooling to be able to support those large-scale NVIDIA chips. But that technology over the course of the next few years is really going to change so many industries - healthcare, education, transport, just even in Microsoft's portfolio, the co-pilot services that are available, that little productivity assistant, it's a far more effective version of Siri that's in your phone. And I think we'll all be able to benefit from having multiple AI assistants, helping us in everything that we do in our lives.

Craig Scroggie: We'll have to build more digital infrastructure to support more GPUs. GPUs have to live somewhere, so those computers need to live in a data centre and they need to be managed and cooled. And ultimately for us, that means that we'll be building bigger data centres with more power density per square metre. 

We'll be really unleashing new technology around liquid cooling. So we have both direct-to-chip cooling and immersion cooling that helps reduce the amount of heat. And that's a really big issue with those big dense GPUs. They produce a lot of heat and in order for them to operate, they need cooling systems that can operate at low temperatures so they don't overheat in operation. 

The AI boom has really only just started. I've been working in technology for 30 years, and I've never seen a moment in my career as significant as the one that we're just starting to go through now.

Craig Scroggie: Not a silly question at all. Probably one of the most regular questions I get asked by investors. It's our customers that buy the GPUs. It's the Microsofts, Amazons and Googles of the world that are building large-scale compute infrastructure. And those companies are helping provide the AI services. We're building the digital infrastructure that hosts those GPUs for those customers.

Craig Scroggie: I actually think we're doing a great job. You look at some of Australia's greatest success stories - Atlassian, SafetyCulture, Freelancer. I mean, there are so many amazing businesses. Canva, what Melanie and Cliff have done with their business. There are some extraordinary stories. 

I think the weight of scale has a big influence on when you look at the US market and Silicon Valley, just the density of investment and the VC community there. You had a lot of very, very successful entrepreneurs who came through early and then reinvested their success in the next wave of startups. 

We have more of that going on in Australia today than we've ever had at any other point in time in history. And while financial markets have been a little bit choppy recently, and raising capital is more challenging, public markets are difficult, and the cost of debt's going up, when you take a long-term view, all these things will normalise. 

I think the environment in Australia today is pretty exciting for startups, and you don't necessarily have to move to the US to get access to capital or expertise to grow a startup successfully.

Craig Scroggie: Well, someone's got to be the outlier. Look, at the end of the day, the company's very, very focused on what we believe we can achieve in building digital infrastructure for the next decade and more. Our success largely over the last decade has been building this world-class platform right here in Australia. 

We're just starting to develop internationally now, so Malaysia, Japan, New Zealand, new regions, new markets. It introduces more risk in the company as you start to scale. But I'm extremely confident that we've got more than a decade's worth of track record, building something very, very successful. 

The proof is in the support that we have from the world's largest technology companies that we're doing a good job doing what we're doing. We can always learn more. We've always got more to learn. We've always got more to do as far as putting the customer at the centre of everything that we do. But I've never seen more opportunity at any other point in my career than I do today.

Craig Scroggie: Dividends... Ultimately, at some point in time in the future, infrastructure assets will get to a point where the market slows and growth is no longer a key feature. And at some point in time in the future, if our annual revenue growth is not at 20% or 25% - we've had a compound revenue growth over a decade of 15% to 20%. 

If you're growing at that rate, and we can continue to grow shareholder value, most shareholders tell me today, 'I'd rather you continue to invest my money because I can't think of better things to produce a better return than what it looks like NEXTDC is going to generate for me over time.' 

At some point in time, the market may change and then we'll make a decision about whether we should return some capital to shareholders. But as it stands at the moment, we can continue to ask ourselves the question, 'Do investors want us to continue to invest or do they want us to pay a dividend?' And it is universal. They want to see companies continue to grow if they can do that in a disciplined cost-effective way.