Australia | 5:11 PM
NextDC’s contract utilisation and capex update highlights potential to far exceed FY25 numbers.
- General market malaise weighs on NextDC share price
- Contract utilisation and order book on the rise
- Capex guidance raised to meet additional customer commitments
- Demand for data centres is accelerating
By Mark Woodruff & Rudi Filapek-Vandyck
Shares in Australia's largest listed developer and operator of data centres, NextDC ((NXT)), rallied to just under $18 in mid-September.
That was but a smidgen away from setting a fresh all-time record above the peak pricing of 2024, when global finance was still mesmerised by AI and its underlying infrastructure build.
Not bad hey, for a stock that first listed on the ASX on 13 December 2010 with an IPO price of exactly one dollar. For those readers who like to play with numbers, this implies a return of 1,700%.
Things have changed quite dramatically since and in a very short time span. Less than three months later, the shares are now changing hands for a little above $13.50.
Under 'normal' circumstances (if there is a 'normal' for financial markets) a loss of circa -25% in such a short period would have been caused by management issuing a profit warning, or by a drastic reset in global bond yields (a la 2022), a significant change in sector outlook, or maybe a deep slump in economic momentum, but in 2025 it's virtually impossible to make any such cases.
Were the shares egregiously overvalued, maybe?
Not according to FNArena's consensus price target which has remained relatively stable throughout the year above $20, signalling sector analysts believe the shares are currently undervalued by nearly -50% (plus the share price only ever reached as high as $18, still short of price targets set by every single broker we monitor that researches this company).
Once we broaden our view to other growth and technology stocks, it soon becomes clear that whatever is dogging the NextDC share price is unlikely to be specifically company-related.
Car Group ((CAR)), Objective Corp ((OCL)), Pro Medicus ((PME)), REA Group ((REA)), TechnologyOne ((TNE)), Xero ((XRO))... the list is long, much longer than this selection, but they all share the same underlying inertia post the August reporting season.
Growth is out of fashion. Higher valuations are out of fashion. AI has become a big No-No. And related stocks have felt more deeper impact than overseas peers.
The latter would be kind-a ironic (if this wasn't about real money and real capital losses) because one of the drivers behind this general aversion towards prior popular outperformers is widespread investor anxiety about bubble-like valuations for Growth and Technology stocks in the US.
Another concern is AI enthusiasm might be running too hot, significantly increasing the risk for a painful blow-up.
But do note the irony: the S&P500 is but one rally away from setting a fresh record all-time high. The Nasdaq, admittedly, is now underperforming. And so are other markets, including the UK, Japan and Hong Kong. But Australia is among the worst performers this year and its major indices have been going nowhere fast for weeks now.
Those stocks that trade on above-average PE ratios in particular have been under the pump. Strictly taken, as a developing infrastructure operator still in its investment phase, NextDC is not profitable, so there is no PE, but I am sure you get the picture.
The local bond market starting to price in an end to RBA loosening and the prospect for rate hikes in 2026 is also of importance, as is the fact global bond yields have risen recently on various factors and despite the ongoing prospect for more cash rate cuts from the Federal Reserve.
Meanwhile, emerging narratives are following the share prices, because humans need and seek validation, with REA Group's business about to suffer from increased competition, AI will make TechnologyOne and other software businesses obsolete, and there simply is no case for profitability in data centres.
The irony here is that voices inside these industries talk a completely different language. In terms of NextDC specifically, see the company's recent announcements and investor presentations, or that of its industry peers and competitors.
One year ago, the same news flow would have put a rocket under that share price.
This time around, shareholders are looking towards a -25% retreat in a market that on all accounts is solely interested in microcap speccies and resources/commodities.
While we can try to put a positive spin on the current situation, maybe the safest prediction to make is this too shall pass, eventually.
Like it did in early 2017. Like it did in late 2022. Like it always has done.
And it will always look logical and straightforward in hindsight.
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