Now could be the time to snap up NextDC Ltd (ASX: NXT) shares according to analysts at Goldman Sachs.
That's because its analysts believe that the ASX tech stock is currently trading at an "unjustified" discount to peers.
And that was before the data centre operator's shares crashed deep into the red on Monday, making its shares arguably even more attractive today.
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What is Goldman saying about this ASX tech stock?
Goldman Sachs has been looking at recent quarterly updates and industry feedback and believes it is all favourable for NextDC's outlook. It commented:
Recent US quarterly results +ve for NXT: (1) At Jun-24 quarterly results, all 3 hyperscalers and META spoke to higher forward looking capex investment to support AI/cloud products, while AWS/Google are seeing an acceleration in CC rev. growth (Azure slowed marginally, but MSFT guided to Azure re-acceleration in C1H25); and (2) Global DC peer DLR reported strong pricing trends in the key North Virginia Market – which we view as a positive proxy for AU pricing trends (AU partly an 'overflow' market for US AI demand).
In respect to industry feedback, Goldman adds:
industry feedback also constructive, noting i) AU competition not as fierce as commonly believed, with all operators doing well; ii) NXT as largely locked-in contracts at its S3/S6/M2/M3 facilities, but these could take 2-3 months to finalize; (iii) NXT is now perceived as the #1 provider of Enterprise colo in AU.
Big returns
In response to the above, the broker has reiterated its buy rating and $19.00 price target on the ASX tech stock.
Based on its current share price of $15.67, this implies potential upside of 21% for investors from current levels.
As mentioned at the top, Goldman Sachs thinks that NextDC's shares are trading at a discount to peers. It doesn't believe this is justified given the company's "compelling growth profile." Goldman explains:
We are particularly positive on NXT and are Buy rated given the rapid growth in cloud adoption, which has been supported by the continued evolution of the enterprise telecommunications market, and the significant demand by both public and private investors for digital infrastructure assets. We believe the company has a compelling growth profile and a proven and profitable business model, noting it trades on a growth-adjusted discount vs. peers, which we view as unjustified. Key risks to our view include: (1) Increased competition; (2) Timing of contracts; (3) Customer concentration; and (4) Execution risk on further expansions.
