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NEXTDC Ltd (ASX:NXT) share price jumps 7% on Sydney S2 update

Super computer in research institute

In morning trade the NEXTDC Ltd (ASX: NXT) share price has stormed higher.

At the time of writing the data centre operator’s shares are up 7% to $6.80 following the release of an update on its new Sydney centre.

What was in the update?

This morning NEXTDC announced that the new Sydney S2 data centre has increased its contracted commitments by approximately 9MW to more than 14MW since the end of the financial year. This equates to 47% of total planned capacity.

In addition to this, management has advised that the S2 data centre is on track to open in the first half of FY 2019. After which, the critical infrastructure build out is expected to continue for at least another two years.

Revenue recognition for the new contracted commitments will ramp up during FY 2020, with the full run rate impact expected to be recognised in FY 2021.

What next?

Given recent positive developments in the Sydney market, NEXTDC has advised that it will now bring forward an additional 8MW of capacity in order to capture the growing demand for data centre services.

As a result, the current capacity under design and development for S2 is now 22MW of the 30MW total planned capacity. Importantly, this will not change the company’s existing FY 2019 capex guidance of between $430 million and $470 million as the additional capex will form part of the additional capacity to be delivered in FY 2020.

CEO Craig Scroggie appears to be pleased with the development. He said: “We advised the market at the time of FY18 results that the Company’s sales pipeline was very strong and the timing of large sales to the hyperscale cloud market would be unpredictable given the long run nature of the sales cycle. We’re very pleased to have now locked in material MW contracted commitments against these expectations.”

Before adding that: “The demand for our data centre services continues to accelerate and exceed our expectations, particularly in the Sydney market.”

Should you invest?

Given that there had been concerns floating around that data centre demand wasn’t as strong as many had expected, I’m not surprised to see its shares launch higher today.

While its shares are certainly a high risk option due to the premium they trade at, I believe that investors prepared to make a patient buy and hold investment could do very well.

Other alternatives in the space include Macquarie Telecom Group Ltd (ASX: MAQ) and Megaport Ltd (ASX: MP1).

Finally, if you like shares like NEXTDC then I think you'll love these exciting tech shares.

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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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