NextDC (ASX.NXT) raised $1.5 billion in equity at $12.70 per share and increased its debt facilities by $2.3 billion to fund increased capital expenditure to meet growing data center demand driven by AI.

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

  • Management increased FY26 capital expenditure guidance to around $2.85 billion from $2.55 billion previously and up from $1.7 billion in FY25.
  • As of end March 2026, NextDC’s pro forma contracted utilization had increased by approximately 250 Megawatts (60%) to 667 Megawatts since end 2025. The company’s pro forma forward order book had increased by 247 MW (83%) to 544 MW over the same period.

The bottom line: We increase capex forecasts in line with guidance and raise our revenue forecast from fiscal 2027 onward. Our fair value for NextDC decreases to $15.60 from $17 previously, primarily from the dilution of raising equity at below our valuation.

  • NextDC’s price/book ratio is around 2.6 times. It does not revalue its data centers each year, and we estimate its early data centers in inner city areas have substantially increased in value. We see it as fairly valued.

Long view: The data center sector is attracting an enormous amount of capital from a large number of investors, and it is very 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, reputation and expertise.
  • Growth is driving very high capex and therefore decreasing free cash flow, which has totaled around negative $3.9 billion over the past four years, and we forecast a further $8 billion in free cash outflow over the next four years, although we expect longer-term profitability once this growth slows.

NextDC accelerating investment to meet AI demand

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 AI, 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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