NextDC raises $1.3bn to build ‘AI factories’

An explosion in demand for data centres has led analysts to lift share price targets for NextDC after it completed one of the year’s biggest capital raisings.

NextDC boss Craig Scroggie in one of the company’s ‘AI factories’. Picture: Mark Cranitch

NextDC’s $1.3bn capital raising has closed nearly fully subscribed, underscoring investment demand for exposure to the artificial intelligence boom, that has prompted some analysts to sharply lift their share price targets for the company.

Chief executive Craig Scroggie said the company received “strong support” from institutional investors, with a take-up rate of about 99 per cent.

“The balance of approximately 1 per cent was allocated on a proportional basis to eligible institutional shareholders who elected to bid for additional shares over their existing entitlements,” he said.

NextDC’s raising was priced at $15.40 a share – a 6.8 per cent discount to its previous trading price – as a one for 6 pro-rata accelerated non-renounceable offer.

Canaccord lifted its target market valuation for the company to $11bn, up from $8.2bn currently, despite saying near-term earning multiples “may be challenging for some”.

“But we think it's more appropriate to base a valuation around NextDC’s order book, which has nearly 70MW of incremental capacity to come on stream over the next five years,” analysts Conor O’Prey and Annabelle Holden wrote in a note to investors.

“On that basis, we value the shares at $11.1bn or $18.54 per share, which we round to $18.50 for our revised target.”

Last week, Mr Scroggie said the raising would ensure the company could build out the digital needs of the future and demand was so great that NextDC had no choice but to expedite the development of two key data centres in Sydney and Melbourne.

Analysts at Wilsons Advisory – which as a $20.07 target price and overweight rating on NextDC – said the capital raising appeared to be proof of demand for the company’s services.

Although, analyst Ross Barrows said he would have appreciated more insight on NextDC’s AI strategy.

“One thing we would have liked to have seen more on, was colour on NextDC’s plans for ‘AI factories’,” Mr Barrows wrote in a note to investors last week.

“The capital being raised … goes a considerable way to materially expediting built capacity at its existing assets and accelerating the delivery of its development assets, but further insights into new AI-dedicated assets would have added to our understanding of NXT’s medium-term growth plans.”

NextDC shares slumped 4.97 per cent to $15.88 on Monday after it emerged from its trading halt, in line with expectations for a raising of this scale.

Data centres are considered the gateway to AI, given the copious amounts of data that companies need to train artificial intelligence models and gain meaningful insights that can turbocharge productivity.

The Albanese government has forecast that the AI boom will inject up to $600bn into the nation’s economy by the end of the decade.

Meanwhile, NextDC is forecasting the number of data centres in operation globally to reach above 86,000 by 2027, up from around 51,500 currently – representing a compound annual growth rate of 19 per cent.

Mr Scroggie said retail shareholders will shortly be invited to participate in the entitlement offer on a pro-rata basis. New shares issued under the entitlement offer will rank equally with existing shares on issue.