Neoclouds and the ASX AI plays to own
Neoclouds are producing extraordinary returns in the AI trade – Jonathon Higgins of Unified Capital Partners identifies the ASX opportunities.
Henry Jennings recently sat down with Jonathon Higgins, founder and principal of Unified Capital Partners, to discuss the AI investment landscape, the emergence of neoclouds, and where the smart money is positioning on the ASX right now.
Why ASX tech has struggled
The domestic technology sector has been under sustained pressure, and Higgins is direct about why. Negative earnings momentum across the larger ASX software names – REA Group (ASX: REA) and Pro Medicus (ASX: PME) among them – has driven share prices lower. Sentiment hasn’t helped either, with the market pricing in the risk that software businesses become AI roadkill as the technology reshapes their competitive positions.
The valuation gap is closing too. ASX software companies are now trading towards S&P 500 multiples rather than the premium they once commanded, which Higgins reads as a signal that investors have materially reduced their conviction on earnings certainty. Capital is flowing instead into the electrification and hardware plays offshore – companies with high return on invested capital and structural tailwinds that are simply pulling investment dollars away from the old winners.
The US AI trade is still accelerating
Offshore, the picture is different. Higgins describes demand for AI-related capex as absolutely vertical – semiconductors, memory, neoclouds, compute, hyperscalers, electricians – with no data points suggesting any slowdown. His view is that if anything, the trade has accelerated. Hyperscale capex is up exponentially year on year. Valuations in Anthropic, SpaceX, and OpenAI continue to rise. Capital markets are opening up further, with Alphabet (NASDAQ: GOOGL) raising equity for the first time in 21 years – anchored by Warren Buffett – as a signal that even value investors see the returns as real.
Neoclouds explained
Neoclouds are an emergent sector that most Australian investors haven’t encountered yet. Higgins describes them as specialist companies that rent GPU compute to enterprises, governments, and hyperscalers – sitting between Nvidia (NASDAQ: NVDA), which supplies around 95% of the world’s AI GPUs, and the end users who need access to that compute without the capital commitment of buying it outright. The alternative delivery points are hyperscalers such as Microsoft (NASDAQ: MSFT), AWS, and Google, or enterprises running their own workloads – but neoclouds provide an OPEX-like model that is proving increasingly attractive.
Eighteen months ago the sector barely existed in terms of investor interest. Now it is generating some of the most dramatic returns in global markets. Higgins points to Nebius (NASDAQ: NBIS) as an illustration – a $2 billion market cap in September last year, now above $50 billion.
ASX pathways into AI compute
In Australia, the options are limited but growing. The most straightforward exposure sits with the data centre operators – the companies that own the physical infrastructure. Higgins highlights CDC as the standout, having announced contracts equivalent to 40 to 50% of the entire Australian data centre fleet in just the past three months. NextDC (ASX: NXT) and Macquarie Technology Group (ASX: MAQ) also provide direct leverage to the physical real estate layer.
Getting into the neocloud layer itself is harder on the ASX. Higgins identifies three Nvidia Cloud Partners operating in Australia – Fermus, SharonAI, and Centuria – as the names worth watching. Megaport (ASX: MP1) has moved into GPU rental via a recent acquisition and capital raise, though without the same cloud partner certification as the three dedicated players, and on shorter-term contract structures. Higgins sees it as one of the only ways to access compute leverage on the ASX until SharonAI lists locally.
SharonAI – Unified’s top pick
SharonAI (NASDAQ: SHAZ) is the stock Higgins keeps returning to. Currently listed on the NASDAQ with a market cap approaching $3.5 billion US, it has run from somewhere between $100 and $200 million around seven months ago. Unified Capital Partners was the first Australian broker to initiate coverage. The reasons are structural – SharonAI is one of three official Nvidia Cloud Partners in Australia, has announced the world-first agreement to sell compute directly into Nvidia’s spot market, and counts Cisco, Nvidia, Oak Tree, Lenovo, and Situational Awareness among its strategic partners and investors.
The investment case has also improved materially in recent weeks. Following the Nvidia partnership announcement, Higgins estimates SharonAI’s cost of debt has fallen from around 10 to 12% per annum down towards six to seven percent – meaning the same chips, bought at the same price, now generate significantly higher IRRs. A potential ASX listing is widely speculated and, if it proceeds, would make SharonAI one of the largest and fastest-growing companies on the local exchange.
Two electrification plays still with legs
Beyond the neoclouds, Higgins remains constructive on the second-derivative electrification beneficiaries – the contractors and manufacturers enabling the data centre buildout. Two names stand out.
Mayfield Group (ASX: MYG) is a top-three switchboard manufacturer based in Adelaide with a strong balance sheet and net cash. Higgins sees it as underdiscovered by the market, with large projects in its tender pipeline and scope for re-rating as contract wins come through.
Tasmea (ASX: TEA) is the other. Following its acquisition of Maxim Group, which carries exposure to one of Australia’s larger data centre operators, Tasmea is now one of three electrical contractors active in the data centre space. It is trading at around 20 times PE while peers sit at 25 to 30 – a discount Higgins argues is not justified given the earnings trajectory.
The case for Zip
Higgins is high conviction on Zip (ASX: ZIP) despite the recent volatility. The business has been repositioned significantly over the past three years, and while bad debt concerns spooked the market earlier in the year, Zip has since guided bad debts lower. Trading at around 10 to 11 times cash earnings into next year against a peer multiple of approximately 15 times, Higgins sees the setup as attractive – particularly for a US dollar earner if the Australian dollar comes under pressure from interest rate differentials. New products and strategic partnerships are expected to extend the growth runway into FY27.
Rates, rotation, and what comes next
Higgins’ broader macro view is that the Australian economy looks bad enough that investors should start becoming positive on it. Interest rate rises are still priced into the forward curve, but he expects that to change quickly. When rates peaked in previous cycles, a clear rotation followed – into retailers, REITs, software, healthcare, and alt assets. Higgins thinks that playbook is worth dusting off now, ahead of what he expects to be a materially different market by December.
The main risk to the constructive view is a sustained escalation in the Middle East. A prolonged conflict would pressure fuel supplies, inflation, and ultimately interest rates in ways that would challenge the rotation thesis. The US midterms are also on his watch list, with potential for significant policy announcements from both parties as the cycle approaches.
For retail investors wondering whether they have missed the AI trade, Higgins’ answer is that the opportunity remains – but it is a market that rewards concentrated research. Unified runs dedicated coverage and travels to meet companies. Without that depth of research, the better answer is a fund that does it full-time.