NextDC’s AI Infrastructure Bet: Why This Data Center Play Just Got Macquarie’s Backing

NextDC (ASX: NXT) has attracted renewed institutional attention after Macquarie maintained its Outperform rating with a $21.20 price target, representing approximately 25% upside from current levels around $16-17. As the AI boom accelerates, many investors are chasing software names. But NextDC offers a different angle: it builds and operates the data centres that power AI. It’s a quieter, infrastructure-driven play, potentially lower risk, but still deeply tied to AI growth.
The real question: does its premium valuation reflect long-term competitive strength, or is it just riding the AI hype?

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NextDC: The Silent Beneficiary of Australia’s AI Boom

What makes NextDC’s positioning compelling is its role as critical infrastructure rather than speculative technology. The company operates more than a dozen Tier III and Tier IV certified data centres across Australia, with expansion underway in New Zealand, Japan, Malaysia, and Singapore. Unlike AI software companies that must prove their products work, NextDC benefits simply from enterprises needing more computing capacity, regardless of which specific AI tools they choose.
This advantage becomes clearer when considering the business model:

– Hyperscaler reliance: Amazon Web Services, Microsoft Azure, and Google Cloud lease capacity from operators like NextDC, creating predictable revenue streams

– Proven growth: NextDC generated $427.2 million in net revenue for FY25, up 14% year-over-year, with EBITDA of $216.7 million

– Forward visibility: The company holds 133.9 MW of contracted capacity in its order book, with 85% expected to convert to revenue within two years

– Network effects: NextDC’s ecosystem of 750+ cloud, network, and IT service providers creates compounding value; the more providers present, the more attractive the platform becomes

The Australian market context strengthens the thesis. With data sovereignty regulations requiring certain workloads to remain onshore, NextDC’s domestic footprint becomes increasingly valuable as enterprises adopt hybrid cloud strategies.

Why Infrastructure Beats Speculation in the AI Race

Macquarie’s backing signals institutional confidence that NextDC’s infrastructure-first model will capture AI value without the execution risks facing pure-play AI companies. The broker highlighted that NextDC’s ability to deliver capacity within 3-6 months gives it a competitive edge, with return on invested capital exceeding cost of capital, meaning profitable investments.
However, investors must weigh the capital intensity. NextDC remains loss-making, posting a $60 million loss for FY25 (up from $44 million in FY24) as it builds capacity. The company projects $1.8-2 billion in capex for FY26. While cash sits at $244 million (down from $1.2 billion), NextDC has $6.4 billion in total debt with $5.5 billion in liquidity to fund expansion.

The Investor’s Takeaway

At 40.3 times forward EV/EBITDA, NextDC appears expensive by traditional metrics, pricing in significant AI execution. The company won’t reach profitability until FY29, with a forward P/E of 56.2 times for that year.
For the valuation to prove justified, AI workload growth must sustain, NextDC’s Asia-Pacific expansion must execute without cost overruns, and margins must expand as facilities reach optimal utilisation. Key risks include AI demand moderating, hyperscalers building more in-house capacity, or construction delays draining capital.
The Macquarie endorsement suggests NextDC offers less volatile AI exposure than pure software plays. For investors with conviction that data centre demand will grow regardless of which AI applications succeed, NextDC presents a compelling infrastructure case, but only for those comfortable with short-term losses in exchange for potential long-term scale. At today’s premium valuation, this suits growth investors willing to bet on flawless execution in a capital-intensive, increasingly competitive market.