No Respite For NextDC (Amidst General Inertia)

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This story features NEXTDC LIMITED, and other companies.
For more info SHARE ANALYSIS: NXT
The company is included in ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

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.

Strong momentum characterises FY26

Five months into FY26 and data centre-as-a-service provider NextDC has already nearly matched the record contracted megawatts (MW) added in FY25.

Following recent customer contract wins which have boosted the forward order book, management has provided a contracted utilisation and capex guidance update, including increased pro forma contracted utilisation by 29% (or $71MW) to 316MW on December 1 from 245MW on June 30, when consensus was expecting only a 44.5MW increase.

The pro forma order book has increased by 53% to 205MW, which is expected to progressively convert to billings and revenue across FY26-29.

UBS believes the structural AI thematic is re-accelerating, cloud demand remains very strong, and investors are likely to re-enter a phase of increasing exposure to both.

The stock remains one of this broker’s key APAC region recommendations for clients.

A builder and operator of independent co-location facilities delivering power, cooling, security and IT systems for cloud infrastructure, NextDC provides the foundational platform for the digital economy.

The company supplies critical power, security and connectivity to global cloud providers, enterprise customers and government agencies.

Once the company’s facilities are fully built out and billing their current contracted capacity, Canaccord Genuity observes shares would trade on an EV/EBITDA multiple below 20x, even after factoring in a larger corporate cost base to support longer-term growth.

This analyst highlights this multiple is below those seen in mature data-centre portfolio transactions.

Additional guidance

The utilisation announcement highlights significant growth in customer commitments and prompted an upward revision to management’s capital expenditure plans, aligning with surging requirements for cloud and AI workloads.

To deliver on new customer contracts, management has pulled forward a share of planned inventory expansion, upgrading FY26 capex guidance to -$2.2-2.4bn from -$1.8-2bn previously.

While the announcement does not specify when the new contracts will begin billing, the $400m increase to FY26 capex guidance suggests to Canaccord Genuity a portion is likely to commence in FY27.

Unsurprisingly, suggests the broker, management’s FY26 guidance for net revenue and underlying earnings remains unchanged, given the update comes nearly halfway through the financial year.

Guidance is for revenue of between $390-400m and FY26 underlying earnings in the range of $230-240m.

The company had guided to just 50-100MW of contract wins for FY26, so the latest announcement, together with industry feedback pointing to strong demand from western and eastern hyperscalers, signals to Ord Minnett a favourable setup for the full-year outcome.

Given Hyperscale Cloud and NeoCloud activity levels and global demand levels continue to rise, and there are still seven months remaining in FY26, Morgans expects management to continue increasing its guidance for contracted utilisation.

It’s noted the company contracted 71MW in the first five months of FY26 versus around 92MW in the 12 months of FY25.

More on NextDC

The company operates Australia’s only network of Tier IV certified data centres and is the only data centre operator in the Southern Hemisphere to hold an Uptime Institute Tier IV Gold Operational Sustainability certification.

The business model centres on offering secure, carrier-neutral co-location space along with value-added connectivity services. Its data centres house IT infrastructure for cloud providers, telecommunications carriers, and corporate customers, allowing clients to offload their on-premises servers into NextDC’s secure facilities.

Key features of the company’s data centres include redundant power and cooling systems to ensure continuous availability, high-speed network interconnection hubs that link customers to cloud platforms and service providers, and stringent security and a focus on sustainability.

The company has over 750 cloud, carrier, and IT service provider partners, including major global cloud platforms, integrated into its facilities, enabling hybrid cloud deployments for customers.

NextDC’s strategic footprint covers Sydney, Melbourne, Brisbane, Perth and Canberra, with additional sites in regional locations like Port Hedland (PH1/NE1), Sunshine Coast (SC1), and Darwin (D1).

Management has also launched international projects such as a 65MW hyperscale site in Malaysia and a new Auckland facility, slated for H1 2026 commissioning. Its latest announcement refers to future plans in Japan.

Outlook

The analyst at Morgans believes NextDC is well placed to benefit from significant and ongoing structural growth, which is accelerating the demand for data centres.

As the company’s share price is now around -40% below Morgans’ $19 target price, the broker has upgraded its rating to Buy from Accumulate.

There is now a clean sweep of Buy ratings among the seven daily monitored brokers in the FNArena database.

Including following an in-principle agreement with OpenAI, FNArena’s consensus price target has slightly risen to $20.26.

Citi analysts have opened a 90-day positive catalyst watch as they seem confident more contract announcements are forthcoming from NextDC.

Outside of daily coverage, Canaccord Genuity (Buy) increased its target to $22.55 from $21.70.

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