NextDC Ltd (ASX: NXT) shares have become increasingly popular among retail investors over the past few years.
This has largely coincided with the rise of artificial intelligence (AI).
NextDC plays a critical role in allowing the AI ecosystem to function by providing the physical foundation that allows AI systems to operate.
AI workloads require GPUs, such as those designed by the world's most famous chipmaker, Nvidia. These require advanced cooling, which is where NextDC comes in.
NextDC provides data centre services and cloud connectivity infrastructure. It currently has 17 operational data centres across Australia, Malaysia, and New Zealand, with a further seven facilities under development or planning.
Since hitting a 52-week low of $9.40 in April, NextDC shares have soared nearly 70%.
Yesterday, they closed at $16.89.
Investors may be wondering whether they've missed the boat, or whether the ASX 200 stock has further to run.
Macquarie says AI rally has further to run
In a 26 September research note, 'AI capex & lessons from the Internet boom', Macquarie Group Ltd (ASX: MQG) made the case for why the AI boom is likely to continue.
The broker cited the significant amount of money being spent on AI-related capital expenditure.
Last night, Nvidia set another new all-time high of $188.14, reflecting investor confidence in the future of AI.
In that report, Macquarie named its top three ASX-listed stocks in the AI space.
One of them was NextDC shares.
Zoning in on the NextDC investment opportunity
On 1 October, Macquarie released another research note focusing on NextDC shares.
Macquarie retained its outperform rating on NextDC shares, with a price target of $20.90.
Based on yesterday's close price, that suggests 24% upside from here.
The broker said:
Capital intensity is high but is being deployed at an ROIC > WACC. Improving strategy to target AI contracts. Significant opportunity set, strong market position, need to execute. We have confidence in contract wins. Retain Outperform.
"ROIC>WACC" means that the return on invested capital exceeds the weighted average cost of capital. This means that NextDC is investing in profitable projects.
On NextDC's competitive advantage, Macquarie also said:
NXT has highlighted that customers are looking for capacity within 3-6 months of signing a contract, which industry feedback validates. As such, the ability to prepare a site and deliver capacity quickly is a key component of competitive advantage. This drives a higher risk profile relative to fully pre-leases development, but is necessary to compete in current market conditions.
What are other experts saying?
It seems that Macquarie isn't the only expert that favours NextDc shares.
Last week, The Motley Fool's James Mickleboro revealed that Morgans has a price target of $19 on NextDC shares.
While not quite as optimistic as Macquarie's price target of $20.90, Morgans is still predicting NextDC shares can deliver double-digit returns over the next 12 months.
