NextDC (ASX.NXT) ended fiscal 2026 with billing utilization of 175MW and a 565MW forward order book, the bulk of which should convert to billing over the next two years. Guidance is for fiscal 2027 revenue growth to jump to 55% from 16% in fiscal 2026 with underlying EBITDA growth of 60% forecast.

Why it matters: NextDC has seen a wall of demand for data center capacity coming from both artificial intelligence and traditional cloud for several years.

  • Management issued fiscal 2027 capital expenditure guidance of $5.5 billion, previously $4.0 billion, up from $3.4 billion in fiscal 2026 and an additional 60% on top of the $9.2 billion spent since inception in 2011 to meet demand.
  • NextDC raised a total of $9.75 billion of capital in fiscal 2026. including $5.8 billion of senior debt, $750 million of subordinated notes, $1.7 billion of hybrid securities, and $1.5 billion of equity. Some of its existing projects may also be sold into joint ventures.

The bottom line: We increase capex forecasts in line with guidance offset by a raise of our revenue forecast from fiscal 2027 onward by 6%-7%. Our fair value estimate for NextDC remains at $15.60 per share. Next DC’s price/book ratio is around 2.4 times. We see it as fairly valued.

Long view: The data center sector is attracting an enormous amount of capital, and it is difficult to gauge exactly how much capacity is going into a particular market let alone see how this tallies with future demand.

  • However, the growth in demand from AI is driving very strong data center demand globally, and NextDC is in a good position to capitalize given its existing assets and supplier relationships, reputation, and expertise.
  • Growth is driving high capex and therefore low free cashflow that has totaled around negative $6.8 billion over the past five years. We forecast a further $7.9 billion in free cash outflow over the next four years, although we see longer-term cash generation once this growth slows.

NextDC well positioned for explosive growth from AI

NextDC has a big opportunity in front of it, with ample room to increase its data center footprint in Australia and the Asia-Pacific region and reap the financial benefits that its larger scale should provide. The firm is already a primary provider of cloud on-ramps to the biggest global cloud providers, and we expect its importance for cloud connectivity and artificial intelligence compute power in Australia to grow.

NextDC benefits from industry trends, including increasing use of cloud computing and artificial intelligence, that are driving exponential growth in data creation.

While the firm remains focused on deepening its presence in important Australian markets, which we think is smart, it is also addressing various Asian markets with operational data centers in Kuala Lumpur and Japan, with one in Auckland also planned. The Australian market is less penetrated by global companies than other parts of the world are, and NextDC has an opportunity to be a leader in the country. The firm currently has four data centers in Sydney and three in Melbourne to go along with two in Perth, two in Brisbane, and one each in Adelaide, Canberra, Darwin, and Newman. NextDC also already owns land and has plans in place to expand its capacity materially in some of these markets, especially with another three data centers in Sydney and two in Melbourne.

As NextDC gains size, we expect it will see some of the intracontinental benefits that firms like Digital Realty and Equinix have globally. Namely, it will enable its customers to use it to connect their points of presence throughout the continent and to connect to their cloud providers. We expect interconnection services to become increasingly important for NextDC as more businesses transition to hybrid cloud storage models. In 2025, interconnection revenue contributed around 8.6% of NextDC’s net recurring revenue. Given the potential capital requirements from the extreme data center demand from AI, we expect NextDC to continue to use joint ventures to lower the total project cost of capital and maximize its return on equity.

Bulls Say

  • NextDC is well placed to benefit from industry megatrends, including the growing adoption of cloud computing, the Internet of Things, and AI, leading to exponential growth in data creation.
  • The shift to cloud-based services increases the need for enterprises to connect to numerous cloud providers, and the connection is fastest, safest, and most efficient in a co-located data center.
  • With the Australian market less penetrated by the biggest global data center providers, NextDC has an opportunity to be one of the biggest providers on the continent.

Bears Say

  • Rapid technological advancements could reduce the space required by tenants to store data and leave NextDC with excess capacity and margin deterioration.
  • NextDC is heavily reliant on cloud providers, which could choose to attract customers to their own facilities, undermining its business model.
  • Increasing adoption of virtual connectivity solutions may reduce demand for physical space and physical connections in NextDC’s data centers.

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