Data center, or DC, histrionics inundate financial media daily. From start-ups enjoying rising valuations with opaque revenue outlook to firms buoyed by “AI-powering, picks-and-shovels” narratives, the data center thematic is captivating investors. We assess its relevance to Macquarie Technology.

Why it matters: Macquarie Technology (ASX.MAQ) generates earnings of around $40 million a year from DCs, equating to 35% of the current group total EBITDA. The new phase 1 $350 million DC construction with 6 megawatts of new capacity is on track to be ready for service from September 2026.

  • Current DC earnings are not “theoretical” but real cash flows. The investment to lift capacity by 41 MW at the IC3 SuperWest site, from the initial 6MW from September 2026, is backed by power security, hyper-scaler demand and funding (at least for the first 19MW of the extra capacity).
  • Management has a 25-year track record of building and operating DCs. This is a key differentiator to some upstarts generating voluminous attention and promising aggressive growth, but with limited operating experience and nascent histories.

The bottom line: We retain our $73 fair value estimate on no-moat-rated Macquarie Technology. Just under 30% of our intrinsic assessment, or $20, is attributable to its medium-term DC investments. Another 30% is from the value of projected earnings generated from existing DC operations.

  • In essence, this is a company with DC value that is tangible, or certainly much more so than many of the DC firms currently attracting investor interest. The enormous “potential” scale of these firms may dwarf Macquarie Technology’s eventual end-state DC capacity of 68MW.
  • But Macquarie Technology’s current DC portfolio is producing cash flows, and its DC expansion pipeline (at least to 68 MW) is realistic. Notwithstanding, shares in the group are trading at a 10% discount to our fair value estimate, perhaps lost in the noise of grander allusion of other DC firms.

Macquarie Technology’s underappreciated Data Center business

Customer service is Macquarie Technology’s key focus across its three divisions of telecom, cloud services and government, and data centers. Management considers its long track record of peer-leading net promoter score as a key differentiator and competitive advantage. On this metric, the group has improved to 87 in fiscal 2025 from 56 in fiscal 2015, compared with the benchmark range of 50-60. Macquarie Technology achieves this by maintaining local call centers, providing prompt resolution of issues, delivering proactive solutions to serve customer needs, and carefully targeting customers (not too big and demanding, not too small justify the servicing).

Cross-selling between the telecom, cloud services, and data center units is also a key focus, albeit the government business is largely self-contained due to security issues. While the group began as a business telecom services provider, it has expanded into faster-growing cloud services, which it upsells to telecom customers. Further, aggressively expanding the data center portfolio provides cross-selling opportunities, while meeting the insatiable demand for management and storage of technology software/hardware in an increasingly digital economy, with artificial intelligence driving the next megatrend.

However, there is no escaping the competitive intensity in all of Macquarie Technology’s operating markets.

The telecom unit’s revenue is stagnating amid structural challenges from the national broadband network while battling industry gorillas such as Telstra, Optus, TPG, Vocus, and a host of “challenger” entities. Management’s only viable strategy is to drive efficiency gains to maintain margins. The move into the government security sector in 2005 and cloud services in 2011 introduced a growth path, but competition is even more intense, as evidenced by declining margins since fiscal 2022.

The expansion into data centers from 2018 is the most recent initiative to boost the group’s long-term earnings. However, data centers are highly capital-intensive, and management’s aggressive growth aspirations are more than matched by many players equally keen to exploit supercharged demand for these digital infrastructures.

Bulls say

  • Macquarie Technology has a history of solid execution and growth, testifying to management’s foresight and execution prowess.
  • A track record of peer-leading net promoter scores, expanding to 87 in fiscal 2025 from 56 in fiscal 2015, compared with a benchmark range of 50-60.
  • Exposure to supportive thematics of the data center industry, given economies’ increasing reliance on digital technology, computer processing, data creation and storage, cloud, and AI. All this is driving strong demand for data centers, given their role as integral facilitating infrastructure.

Bears say

  • Competitive intensity is increasing across all three industries that Macquarie Technology operates in, namely, telecom, cloud services, and data centers.
  • The open-ended ambit of, and the execution risks to, Macquarie Technology’s aggressive data center “build-and-grow strategy.”
  • Building and operating data centers is capital-intensive. Any unexpected developments in cost, customer acquisition, and securing of power supply could materially depress returns on capital.

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