Jefferies sees upside in Indonesia materials stocks from AI buildout

Investing.com -- Jefferies Hong Kong team at Mandiri Sekuritas said materials companies could benefit from infrastructure buildout tied to artificial intelligence data centers, while cautioning that some recent stock rallies appear overdone relative to actual business impact.

AI data centers require different infrastructure compared to conventional facilities. AI server racks can consume up to 20 times more power than traditional server racks, with some configurations using 200 kilowatts compared to 10 kilowatts for traditional servers. Nvidia's Blackwell GB200 NVL72 operates at 120 kilowatts.

The higher power consumption generates more heat, as every megawatt of power entering the rack must exit as heat. This requires liquid cooling systems instead of conventional air cooling, with direct-to-chip cooling using hoses and pipes connecting server chips to cooling distribution units.

Jefferies identified potential bottlenecks in water pipe supply that could benefit materials companies. The firm highlighted AVIA, where about 20% of revenues come from goods distribution, mostly water pipes. While this generates lower margins than its core decorative paint business, increased demand could boost the top line.

ISSP produces steel pipes already supplied to data center racks and structures, though the firm noted the stock's low turnover could present challenges.

The firm said recent rallies in industrial estate stocks DMAS and BEST appear overdone, with gains of 24% to 36% over one month compared to 5% for the Jakarta Composite Index. Jefferies said these companies face land constraints and limited ability to capture recurring revenue from power and water demand.

KIJA owns a 130-megawatt gas-fired power plant in Cikarang through subsidiary Bekasi Power, which could benefit from AI-driven power demand. The plant's 20-year power purchase agreement with PLN ends in 2032.

Jefferies met with Nusantara Data Centre Academy, which said Indonesia's data center pipeline capacity is set to grow four times by 2030 to 2 gigawatts.

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