ASX 200 tech stock NextDC Ltd (ASX: NXT) has been flagged as one to keep a close eye on in the new year.
Shares in the independent data centre operator finished trading 14% higher in 2024, despite a 6% retreat this past month of trade.
Analysts at broker Citi have slated their confidence in the company in a note to clients this week.
Demand for digital infrastructure is surging, so let's take a look at why Citi is bullish on NextDC.
Citi rates ASX 200 tech stock a buy
ASX tech stocks could be in for a big year thanks to global trends in artificial intelligence (AI) and data centres.
In a blog post this weekend, global tech juggernaut Microsoft announced it was "on track" to invest around US$80 billion this year into data centres.
It aims to "build out AI-enabled data centres to train AI models and deploy AI and cloud-based applications around the world."
Analysts at Citi reckon this massive jump in capital expenditure from Microsoft could prove beneficial to NextDC.
Citi says the spend, representing a 40% increase from last year, could extend the ASX 200 tech stock's contracts with Microsoft, according to The Australian Financial Review.
While we have not been able to confirm that contracts have been delayed, even if it were to be true, we see this as likely temporary, especially given Microsoft's capital expenditure plans.
The broker values NextDC at $20 apiece, setting a buy rating in doing so.
This represents an upside potential of more than 32% from the ASX 200 tech stock's closing price last Friday.
AI boom is fuelling tech stocks
Since AI came onto the scene, there's been an enormous uptick in the demand for data centres.
AI relies on massive computing power, creating an exponential demand for data centres to house this capacity. This is where operators like NextDC stand out.
Morgans, who also rates the ASX 200 tech stock a buy, recently commented on the role data centres are playing in NextDC's growth.
As my colleague James Mickelboro reported, the broker said that trends in AI-related digital infrastructure would "underpin attractive returns and long-term growth."
"Data centres ensure secure and efficient data flow, processing, and backup, all of which are foundational to AI," the broker explained. "Our preferred exposure is NextDC."
Meanwhile, according to CommSec, the consensus of broker estimates rates the ASX 200 tech stock a buy. This includes seven buy ratings and one sell recommendation.
The consensus price target from these estimates is $20.24 apiece, as per broker data obtained from Trading View, with a high of $21.20 and a low of $20.
Foolish takeaway
Microsoft's planned US$80 investment into data centres this year took plenty by surprise. Analysts at Citi reckon this could be bullish for NextDC.
The ASX 200 tech stock outpaced the S&P/ASX 200 index (ASX: XJO) by 4% in the last year.
