Singtel’s AI push could lift its digital business to a third of earnings

Singtel’s push into artificial intelligence (AI) could see digital infrastructure and digital services grow to as much as a third of the group’s earnings before interest, taxes, depreciation and amortisation (Ebitda), the company’s group chief executive, Yuen Kuan Moon, has said.

Speaking to CNBC’s Squawk Box Asia on 7 July, Yuen said Singtel is evolving from a traditional connectivity provider into a company built around digital connectivity, digital infrastructure and digital services.

“Connectivity is going to still be a big part of it,” he said. “But we are seeing the digital infrastructure and digital services growing, and we project that today, we have probably about 10-15% of our Ebitda coming through from digital services and infrastructure. Going forward, it could be as big as a third of our business.”

Yuen said the use of AI at Singtel cuts across three areas: using AI to transform the telco’s own connectivity business, investing in datacentres and graphics processing units (GPUs), and helping enterprises and government agencies adopt AI through its IT services arm NCS.

He said the company’s Singtel28 (ST28) strategy, launched two years ago, has helped prepare the group for its move deeper into digital infrastructure and AI services by recycling capital, investing in growth areas and returning value to shareholders.

The group has recycled about S$6.8bn of capital so far, against a medium-term target of S$9bn, he said. Singtel has also grown dividends over the past five years and improved its return on invested capital from “medium single digit” levels to 11.1% at its latest results.

“I would say it is way on track, and will very likely hit our ST28 target in 18 months,” said Yuen.

On datacentres, Yuen said Asia-Pacific remains under-penetrated compared with the US and Europe, which reduces the risk of overcapacity in the region.

“I believe that there’s still a lot of demand for datacentres because of the AI push in the region,” he said. “We are only seeing a very early stage of AI adoption, whether it is from public sector or private sector. So, I think we are just touching the tip of the iceberg today.”

He added that new-generation datacentres will need to support advanced chips and liquid cooling, an area Singtel is focusing on.

Combining the capacity of Singtel’s Nxera datacentre arm and ST Telemedia Global Data Centres, which Singtel and private equity firm KKR are set to acquire, Singtel expects to have about 2.8GW of datacentre capacity in its pipeline once the acquisition is completed, he said.

Yuen noted that KKR has been an important partner in Singtel’s digital infrastructure push. KKR took a 20% stake in Nxera over two years ago, helping Singtel fund its datacentre growth. He added that the partnership allows Singtel to “stretch our dollar further” while continuing to deliver shareholder returns through dividends and profit growth.

On Singtel’s datacentre business, Yuen said carrier neutrality is key. While Singtel owns fibre and submarine cable assets, its datacentres cannot be tied exclusively to Singtel’s own connectivity network. “Nobody will connect to you if you do not have diversity,” he said. “While it is independent, we do have synergies, because we know where the demand is coming from.”

Internally, Yuen said Singtel’s employees have embraced AI tools, with usage rising sharply after the group initially worried that staff might not adopt them. “They are maxing out all the tokens, and it’s going to have a runaway cost, but it’s a good sign. That means our people are all embracing the use of AI,” he said.

The way to manage AI costs, he added, is to avoid relying only on the most advanced frontier models. Companies should use a mix of models, including open-weight models running on their own GPUs, depending on the workload. “Every company should start to look at embracing both,” he said. “Not just the frontier model, where it’s going to eat up a lot of tokens and it’s going to cost you a lot of money.”