Nextdc Ltd (ASX: NXT) shares are racing higher on Friday morning.
At the time of writing, the data centre operator's shares are up 11% to $14.90.
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Why are NextDC shares jumping?
Investors have been bidding the company's shares higher this morning after it confirmed media reports of a major development plan.
The AFR reported that ChatGPT's owner, OpenAI, has signed an agreement to become the major customer in a new $7 billion NextDC data centre that will be the largest in the southern hemisphere.
NextDC will reportedly build the 650 megawatts centre in Sydney's Eastern Creek after securing OpenAI as its anchor tenant. It will be used to run the artificial intelligence (AI) models, tasks, and queries from OpenAI's Australian corporate clients. This includes Commonwealth Bank of Australia (ASX: CBA), Wesfarmers Ltd (ASX: WES), Canva, and Atlassian (NASDAQ: TEAM).
OpenAI's chief executive, Sam Altman, commented:
Australia is well-placed to be a global leader in AI, with deep technical talent, strong institutions and a clear ambition to use new technology to lift productivity.
This sentiment was echoed by OpenAI's strategy officer, Jason Kwon. He adds:
We are creating a physical presence here in multiple ways and these are intended to be multiple-year partnerships where we build together. This is really about just the beginning. Our hope is that this sends a pretty clear signal to the Australian market that there is more to be built to enable more economic activity.
NextDC response
This morning, NextDC responded to the reports and confirmed that it has agreed a memorandum of understanding (MoU) with OpenAI to develop a sovereign AI infrastructure partnership under the OpenAI for Australia program.
It notes that through the MoU, OpenAI and NextDC will collaborate on the planning, development, and operation of a next generation hyperscale AI campus and large-scale GPU supercluster at NEXTDC's S7 site in Eastern Creek, Sydney.
Should you invest?
In response to the news, this morning the team at Citi reaffirmed its buy rating and $18.35 price target on NextDC's shares.
This implies potential upside of over 20% for investors over the next 12 months.
Elsewhere, last week, the team at Morgans upgraded NextDC's shares to a buy rating with a $19.00 price target. It said:
The share price has declined ~19% in the last three months and given a ~40% differential between the current share price and our $19 target price we upgrade our recommendation to BUY from ACCUMULATE.
