Under the Spotlight: NextDC ($NXT)

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Australia just waved goodbye to what would have been its biggest float since Telstra, with neocloud Firmus pulling the plug after investors baulked at its valuation.

NextDC ($NXT) investors probably could have warned them. The ASX’s biggest listed data centre operator, $NXT, hit another 52-week low this week, after a 39% plunge.

That's despite signing the biggest year of new contracts in its history, alongside a $7B plan to build OpenAI the southern hemisphere’s largest data centre.

The catch is the data centre boom could now be big enough to influence interest rates, with the RBA pointing to surging investment as an inflation threat. That’s a problem for anyone that has to borrow to build.

Let's put NextDC Under the Spotlight.

First, the macro story

The challenge for data centres today is getting a grid connection big enough to run a site without browning out half of Western Sydney.

Data centres already consume 4% of NSW’s electricity grid, heading to 11% by 2030, while Victoria is set to go from 2% to 8%.

And the grid is filling up quickly. Transgrid is fielding more than 20GW of connection enquiries in NSW alone and says Western Sydney’s main transmission network will be largely full by 2033.

That makes a secured grid connection something money alone can’t buy. Even in the best-case scenario, data centres are targeting roughly two years from application to energisation – assuming there’s capacity to allocate.

NextDC has the head start, with 18 data centres running, 17 of them in Australia, and a development pipeline roughly ten times the capacity it has built.

What NextDC actually does

In a nutshell, it builds data centres and rents them out, mostly to cloud and AI companies. It provides the buildings, power connections and cooling required to keep AI models running.

Unlike a neocloud like Firmus, NextDC’s customers bring their own graphics processing units (GPUs) and servers. NextDC then runs the infrastructure and charges a fixed rate per megawatt.

That rent, collected across 17 data centres in Australia and one in Malaysia, brought in $496.5M of revenue in FY26. That figure is expected to jump to $615M-$640M next financial year, after contracted megawatts tripled in FY26.

According to NextDC, these clients are mostly hyperscalers, with the giant cloud providers accounting for more than 70% of the megawatts billed today.Add in future contracts, and AI and cloud customers account for 95%, with IT service providers, enterprise and government making up the rest.

The numbers that count

Because NextDC sells power capacity rather than floor space, it measures and reports everything in megawatts (MW).

And FY26 was a record year, with contracted capacity hitting 740MW. For context, one megawatt can power roughly 1,000 Australian homes, or a small suburb.

It’s all called capacity, but there’s an important distinction. Most of that capacity is earmarked for future projects, some still years from operating.

Here’s how it breaks down:

• Switched on and earning – 175MW. The only capacity currently producing revenue
• Built and connected – 288MW. Data halls physically fitted out, including the 175MW already earning revenue
• Sold but not yet delivered – 565MW of capacity under contract for future delivery

So the signed-but-not-yet-earning capacity is more than three times the current revenue-generating base. NextDC has sold a great deal of capacity it hasn’t yet built.

 It also explains why the share price has collapsed while the order book tripled. New projects mean more building spend, more debt and more dilution with every contract signed.

The order book

The upside is NextDC expects 197MW to switch on in FY27 and 221MW in FY28, which means 74% of the order book is set to earn income within two years. 

Fully delivered, the company expects to generate more than $1.0B in earnings, four times what it made in FY26.

That isn't cheap. NextDC blew its FY26 budget, spending $3.4B against guidance of $2.7–3.0B, and expects $5.25–5.75B in FY27, about $8.80 of capital for every $1 of revenue.

Most of it goes into two sites: S4 at Horsley Park, upgraded to 365MW with 250MW under construction, and M3 in Melbourne, with another 165MW being fitted out.

NextDC's biggest advantage here is power. NextDC says power is already arranged across its contracted capacity, and that neither the proposed NSW and federal energy reforms nor Transgrid's new capacity limits touch what it has already signed.

 Notably, that doesn't include newer projects like OpenAI's S7 site, which is one of several facing NSW's new efficiency and water rules.

What it's worth

At $10.37, NextDC is worth about $7.9B. Add the debt and you get $8.6B on the company’s headline measure, or $10.3B once you count the $1.7B of hybrid and subordinated capital that still has to be repaid and ranks ahead of shareholders.

That's somewhere between 22 and 26 times the underlying earnings it’s guiding for FY27.

For a sense of whether that’s cheap, NextDC has spent $9.2B on land, buildings and fit-out getting here and carries total assets of $10.2B. On the wider debt measure, the market is valuing the entire business at roughly what those assets are already carried at, with nothing added for the 565MW still to be delivered.

Its classification doesn't help. NextDC will spend roughly $5.5B this year on concrete, transformers and copper, close to nine times its guided revenue, which is an infrastructure cost structure rather than a software one. Yet it sits in the same sector as Xero and WiseTech, while DigiCo, which also runs data centres, is listed as a property trust.

Analysts stay bullish regardless: of the 14 covering NextDC on LSEG, 13 rate it a buy, with an average target of $20.71, roughly double where it trades.

The risks to watch

• Two customers account for half the business – NextDC doesn't name them, but discloses that two customers contributed 33% and 18% of total revenue in FY26.
• Funding – NextDC raised $9.75B across FY26 and another $1.1B in September, with FY27 spending alone forecast at $5.25B–$5.75B. Interest rate movements or borrowing restrictions could slow its pipeline.
• Delivery – Lead times on equipment has the potential to delay projects, with some high-voltage circuit breakers now averaging around 125 weeks.
• Cash flow is heading the wrong way – Operating cash flow more than halved in FY26, falling from $222.6M to $99.9M. The reported $82.1M profit masks this, as it came from revaluing three sites rather than trading operations. 
• The AI trade cools. All of this rests on AI demand holding up. Shifts in customer demand or contractual commitments could hit profitability.

Buy or sell?

NextDC spent sixteen years buying land and locking in grid connections across a country now running out of both. AI arrived, the order book went up 202% in twelve months, and the market responded by marking the stock down 38%.

If grid connections remain the bottleneck, the operators already holding them may well be the ones positioned to win. Most of those operators aren't listed: AirTrunk, the largest in Australia with more than 1.2GW across five campuses, belongs to Blackstone ($BX), and CDC is part-owned by Infratil ($IFT).

On the ASX the field narrows to NextDC, DigiCo ($DGT), which is structured as a property trust, and Macquarie Technology ($MAQ), which is a fraction of the size. 

The catch is that NextDC still has to fund the build, with the cash rate at a 15-year high. The test is whether 418MW switches on, on time, by FY28.

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. The author of this article and other employees of Stakeshop Pty Ltd may hold positions or have financial interests in the company (or companies) discussed above. As always, do your own research and consider seeking financial, legal and taxation advice before investing.

Kylie Purcell

Senior Markets Commentator

Kylie Purcell is an investments analyst and finance journalist with over a decade of experience covering global markets, investment products and digital assets. Her commentary has been featured in publications including the Australian Financial Review, Yahoo Finance and The Motley Fool. She has a Masters Degree in International Journalism from Cardiff University and a Certificate of Securities and Managed Investments (RG146).