NEXTDC: Building Australia’s cloud and AI future

• Style: Growth
• Recommendation: Buy

NEXTDC ASX:NXT builds and operates data centres in Australia and Asia, serving the needs of power-hungry cloud and AI providers at the heart of Australia’s local tech industry.

Providing the essential infrastructure for Australia's homegrown AI revolution

When you think about AI, you probably think about the big model providers and the big personalities that lead them. You probably don't think about the real estate, the power grid, or the facilities that power AI applications behind the scenes.

NEXTDC isn't a glamorous business, but it plays a critical role in enabling Australia's cloud and AI capabilities.

NEXTDC is raising the cash to build and operate Australia's data centres. And as you'd expect, it's a cash hungry operation. NEXTDC's full-year guidance for capital expenditure in FY26 is in the range of A$2.4 to $2.7 billion. To put this in perspective, full-year net revenue guidance is just $390–400 million.

NEXTDC is building quickly to keep up with contracted demand, which is a good problem to have.

From megawatts to margins

Think of it like apartment building. When tenants sign up, there's a good chance that revenue will be booked, even if the build isn't ready yet. The difference is that, instead of floor space, NEXTDC is selling megawatts.

That’s why NEXTDC talks a lot about forward-order-book conversion. NEXTDC's current billing utilisation is 119.8MW of power-and-cooling capacity (this is what customers are currently paying for). However, contracted utilisation is 416.6MW (this is what customers have signed up for).

For scale, 1MW is roughly the average draw of 1,500 typical homes, which makes NEXTDC's contracted capacity comparable to the power demand of a small city.

Contracted utilisation is roughly 2.5 times the current billing level. If NEXTDC can convert this gap into actual billings over the next few years, it will lock in profitability. The only question is whether the business stabilises or keeps building to meet growing demand.

Solid fundamentals with a clear path to profit

NEXTDC’s fundamentals are moving in the right direction, with net revenue growth of 13% year-on-year in 1H26 and underlying EBITDA growth of 9%.

Profitability is negative but dragged down by depreciation, which is layered on whenever NEXTDC invests in land and facilities. Depreciation will likely keep rising in the near term and suppress net profit until the build cycle slows and billing fills the built capacity.

Looking into the future, the EBITDA from fully-billed capacity would be large enough to out-earn the depreciation and interest that the build leaves behind.

Australia's (less glamorous) AI champion

At $15.86 at the time of writing, NEXTDC's price reflects the market's view that most of its capacity will convert, with healthy margins and unit economics. However, the AI demand driver and NEXTDC's track record of execution make this an attractive buy.

NEXTDC is the direct beneficiary of the powerful AI trend. It has the potential to be one of Australia’s less glamorous but no less essential AI champions. There are risks ahead, including execution risk from construction and supply chains, and the risk of dilutive capital raisings. For now, NEXTDC can sustain it's preference for debt and third party capital.

The demand for data centres isn’t going away and the market is still captivated by the AI theme.

NEXTDC is also getting better at building and designing centres. And it has even more to practice on. This will embed more operational, network and scale efficiencies for customers and build the moat even deeper for potential challengers.