Market Concerns Eclipse NextDC’s Growth Outlook

Australia | 11:00 AM

NextDC's latest results positively surprised with records set as the data centres operator continues to capture the massive AI-tailwinds of infrastructure demand and investment.

• Trillions in AI investment confirmed with latest hyperscaler issuance and Oracle's results
• Record contract wins accelerate NextDC’s growth outlook with upside risks to earnings forecasts
• Market is seeking a joint venture partnership to de-risk NextDC's debt profile
• Brokers temper concerns, remain positive on upgraded earnings

By Danielle Ecuyer

AI infrastructure demands keep on keeping on

“If you build it, they will come.” Field of Dreams (1989)

In October last year, Citi lifted its estimate for global AI capital expenditure between 2026 and 2030 to US$8.9trn from about US$8.0trn.

Eye-watering numbers that are hard to comprehend but broadly equate to the combined market capitalisations of the world’s two largest companies, Nvidia and Apple, at respectively US$4.49trn and US$3.85trn.

The increase reflects accelerating demand for compute infrastructure such as data centres, GPUs, networking equipment, and power capacity needed to train and run AI models.

Oracle’s latest third quarter result only reinforced the scale of the investment. The company’s cloud segment, representing 50% of group sales, grew 44% to US$8.9bn on the prior period and Oracle Cloud Infrastructure, which rents out servers to the internet, experienced revenue growth of 84%.

Management stated, “The demand for cloud computing for AI training and inferencing continues to grow faster than supply. Furthermore, some of the largest consumers of AI cloud capacity have recently strengthened their financial positions quite substantially.”

Supporting Oracle’s view that hyperscalers are issuing more debt to fund AI-related capex, the company’s -US$19bn data centre capex resulted in new debt of US$27bn.

Amazon coincidentally raised circa US$37bn of US investment-grade bonds, with the deal upsized from an initial US$25-US$30bn after receiving US$123bn of investor orders.

A further EUR10bn of euro-denominated bonds are slated to be sold, raising a total of some US$48bn-US$50bn.

Alphabet sold US$25bn of bonds into the US and Europe, while Meta Platforms issued US$30bn of corporate bonds last month.

Australia's largest listed data centre company captures positive AI-demand tailwinds

Turning back to Australia, OpenAI announced it would be the anchor tenant in the Southern Hemisphere’s largest data centre under construction in Sydney’s Eastern Creek for $7bn.

The company responsible for building and operating that data centre is NextDC ((NXT)), Australia’s largest listed developer and owner of data centres (ASX-listed since late 2010).

The industry's global tailwinds were clearly evident in NextDC’s interim results in February, with the updated forward order book a positive surprise for investors, albeit the market’s reaction to the news was less enthusiastic than the share price response in August, when the stock rose 15%, as highlighted by Canaccord Genuity.

Analysts and market commentators point to 172MW in new contract wins, the largest sales period in the company’s history, lifting the forward order book 25.7% year-on-year to 297MW.

UBS emphasises NextDC will activate 152MW in FY27, more than the entirety of the 120MW activated since the business started, resulting in “material” upgrades to FY27 earnings and beyond.

This broker estimates the existing contracted pipeline could support earnings (EBITDA) of $719m once fully deployed compared with a circa $239m estimate for FY26.

Canaccord estimates around 55% of the new capacity will convert to billing in FY27, which sits well above consensus and aligns with other brokers.

The pace of the billing ramp reinforces management’s prior comments that customers want to take up capacity much faster than previously.

Importantly for the company’s financial metrics, notably cashflow, the rise in underlying 1H26 EBITDA growth of 9.9% on the prior year versus 3% in 1H25 is indicative of operating leverage beginning to gain momentum, which Macquarie expects will accelerate from FY26 as forward orders convert to billing.

NextDC's management expects billing in FY27 to achieve what the market is forecasting in FY28. As highlighted by Morgans, NextDC now expects 417MW billing by FY29 compared to 245MW billing expected back in August 2025.

Interestingly, management commentary on the call with analysts signaled development “cadence” is accelerating with rising use of AI, which is streamlining customer deployments and achieving higher billable IT capacity within the same footprint, alongside greater modularisation, as highlighted by Macquarie.

NextDC can now deliver between 100-150MW of hyperscale capacity over the next year or so at a lower capex of -$12-$15m for prefabricated hyperscale assets (M4/S4).

Supply constraints continue to limit growth for NextDC, earnings call commentary re-iterated, despite record demand.

Reinforcing the demand tailwinds, Anthropic has announced its Australian launch, with an executive leadership team coming to Australia this month to formalise local partnership deals across customers and policymakers.

“We’re exploring adding local capacity through our third-party partners in Australia, using infrastructure already in place.”