The data centre space is heating up, and data centre operator NextDC Ltd (ASX: NXT) is riding the wave.
At the time of writing, the NextDC share price has jumped a hefty 8.5% to $17.45 apiece following news that US private equity giant Blackstone is set to acquire Sydney-based AirTrunk for a staggering $24 billion.
This massive deal in the digital infrastructure world has investors buzzing.
Let's see what the situation is.
AirTrunk: A tailwind for the NextDC share price?
The AirTrunk acquisition, which values the private company at more than $24 billion, highlights the growing global demand for data centre capacity.
The demand is fuelled by the growth in cloud computing and artificial intelligence (AI) — and with their rise, the need for vast amounts of data storage and processing power is greater than ever.
As more businesses adopt AI, demand for high-capacity data centres — such as those operated by NextDC and AirTrunk — is expected to increase.
Blackstone estimates approximately US$1 trillion in capital expenditures on data centres over the next five years, both in the US and globally.
The focus on cybersecurity is another growth driver for data centres.
Companies and governments are now prioritising the storage of sensitive data – especially in light of recent major data breaches.
AirTrunk boasts more than 800 MW of data centre capacity across markets in the Asia Pacific.
But while AirTrunk's valuation implies a significant premium, like many private deals, it is difficult to directly compare valuations with publicly listed stocks like the NextDC share price.
How does NextDC stack up?
NextDC operates 16 data centres across Australia, catering to hyperscale clients, government agencies, and Australian enterprises.
It's also looking to expand internationally with plans for facilities in Auckland, Tokyo, and Kuala Lumpur.
For FY24, the company posted 12% sales growth, which translated to 10% net profit growth.
Looking ahead, it expects revenue between $340 million and $350 million, calling for growth of 10-14%.
Although these numbers fell slightly short of analyst expectations, NextDC management is bullish.
CEO Craig Scroggie said the company continued to make "strategic investments to expand [its] platform", putting it at the "forefront of the digital infrastructure boom, driven by the fourth industrial revolution."
Analysts at Morgans rated the NextDC share price a buy with a price target of $20.50.
Meanwhile, E&P Capital analyst Paul Mason highlighted that NextDC's valuation currently sat at around 27 times its earnings before interest, tax, depreciation, and amortisation (EBITDA).
This was thanks to its stable earnings and high-quality tenants, Mason told The Australian Financial Review.
Meanwhile, analysts at Goldman Sachs recently rated the stock a buy due to its "compelling growth profile and profitable business model."
Foolish takeaway
The AirTrunk sale has created a stir amongst the investment community after its $24 billion price tag.
Whilst investors have reacted positively to the news by lifting stocks within the broader AI and data-related industries, NextDC also has plenty going on.
The NextDC share price is up 35% in the last 12 months.
