Is the NextDC share price in the buy zone right now?

The NextDC Ltd (ASX: NXT) share price has risen strongly since the beginning of 2020, increasing from $6.58 to its current price of $11.03. That’s an increase of over 67%. An increased demand for cloud and data centre services during the coronavirus pandemic has helped to push the NextDC share price higher.

The locally based data centre provider continues to rapidly expand its portfolio of Tier III and Tier IV data centres throughout Australia.

Is the NextDC share price in the buy zone right now?

A compelling business model

In the data centre service market, ‘scale’ is very important.

When NextDC first entered the Australian market around 10 years ago, the data centre market locally was dominated by a few large global providers. These included United States based Equinix, Global Switch and Digital Realty. Also, the cloud computing trend was in the early stages of its development. However, NextDC has evolved significantly in recent years. It has now reached sufficient size and scale to be able to compete very effectively with these global giants in the Australian market.

NextDC is now the largest, locally-based provider by a long margin. The company has an impressive nationwide network of Tier III and Tier IV data centre facilities. Its extensive data centre network enables local and international customers to connect with a growing range of cloud platforms. This enables them to scale-up their critical IT infrastructure services.

Strong expansion nationwide continues

Over the last few years in particular, NextDC has continued to expand its national data centre footprint rapidly. And it is showing no signs of slowing down this expansion. NextDC recently announced that its data centres based in NSW had won several important customer contracts.

The continued strong growth of cloud computing is driving the ever increasing need for hyperscale data centres. Global technology research firm Gartner predicts that 80% of all organisations will shift their workloads into third-party data centres by 2025.

Over the last 4 years, NextDC’S customer base has grown at an impressive compound annual growth rate (CAGR) of 21%. It continues to expand with a number of data centres currently under construction. NextDC is also adding capacity at existing data centres.

Foolish takeaway

Despite its strong recent rally, the NextDC share price is still in my buy zone right now. I believe that the company is well placed to grow its market in Australia over the next few years. If achieved, this will flow through to strong revenue and profitability growth over the next 5 years.