Megaport (ASX:MP1) up 27% A$254m of AI contracts and Latitude.sh starts paying

Two US customers, A$90.6m of fresh ARR and a two-year payback finally underwrite the thesis

Megaport (ASX:MP1) has just put real numbers on a story that, until today, was mostly strategic narrative. The company announced three GPU, compute, network and storage contracts through its Latitude.sh subsidiary, with a combined total contract value of A$254m and annualised recurring revenue of A$90.6m. That is a meaningful step up for a business that booked A$134m of revenue across the entire first half of FY26.

Two US-based AI customers sit behind the deals, one of which is an existing Megaport customer being upsold into compute. About 90% of the value sits in 36-month committed terms, with the rest on a 24-month structure. Crucially, the revenue is locked in regardless of actual usage.

The Latitude.sh acquisition was the centrepiece of the November 2025 capital raise, and many investors have been waiting for tangible evidence that the compute build-out could attract Tier 1 AI workloads. Today’s announcement is that evidence.

The unit economics finally have a number attached

The contracts require A$140.3m of incremental capex, almost entirely for NVIDIA GPU and supporting infrastructure. Megaport is guiding to a roughly two-year payback, meaning cumulative EBITDA on the deployed hardware is expected to exceed the upfront server spend inside 24 months.

For an infrastructure business, that is an attractive return profile. Network gear in Megaport’s core business typically pays back over longer timeframes, so AI compute is materially more capital-efficient if the customer holds. The committed, take-or-pay structure addresses the usage risk that has scared investors away from GPU-as-a-service models.

The catch is concentration. Two customers driving A$254m of TCV is a meaningful single-name exposure for a business of Megaport’s size. We would want to see further deals at similar economics before treating this as a repeatable template.

Funding is covered, but the capex profile is now larger

Megaport is funding the A$140.3m through existing cash and a newly upsized A$150m debt facility. Pro-forma liquidity sits at around A$199m once these contracts and the late-April compute deal are accounted for, so the company is not heading back to equity markets to pay for this.

FY26 group capex guidance of A$90m to A$100m remains intact for the core business, but capex could rise by up to A$140.3m if hardware lands before 30 June. That is a real shift in the capital intensity profile, and statutory earnings will continue to absorb depreciation for years.

What today’s deal does to the FY27 setup

Full ARR contribution is expected to land on a run-rate basis by the end of H1 FY27. Adding A$90.6m of high-margin recurring revenue to a group that exited H1 FY26 with strong network momentum materially changes the FY27 earnings shape.

We think the more interesting read-through is the pipeline comment. Management has said it is evaluating a significant and increasing number of comparable opportunities. If one more deal of this scale lands in the next 12 months, the conversation shifts to how quickly the platform can scale.

The Investors Takeaway for Megaport

Today’s announcement validates the strategic logic of the Latitude.sh acquisition in a way the H1 result could not. Customers are paying for committed AI infrastructure at attractive returns, and Megaport has secured the funding to deliver it without dilution.

The bull case from here rests on a second, third and fourth deal at similar economics, ideally with different counterparties. The bear case is that this proves to be a concentrated, capital-heavy chapter rather than a repeatable platform. Investors looking for our prior view on Megaport’s H1 numbers can find it at stocksdownunder.

August’s full-year result will be the next genuine data point. We will be watching for pipeline disclosure, gross margin on compute revenue once deployed, and any signal on customer diversification.