Megaport Ltd (ASX: MP1) shares are 1.58% higher in lunchtime trade on Wednesday. At the time of writing, the shares are changing hands for $13.50 a piece.
The software-defined network (SDN) service provider's shares are 23.8% lower than their 3.5-year peak early last month. But they're still up an impressive 81.4% for the year to date.
Megaport completed an institutional placement in mid-November, just a day after it revealed that it was raising $220 million to fund the acquisition of Latitude.sh for US$150 million in cash and scrip.
The company has suffered amid the tech-sector-wide investor sell-off, but analysts are still bullish on the outlook for the stock over the next 12 months.
In a new note to investors, analysts at Macquarie Group Ltd (ASX: MQG) have revealed their latest expectations for the shares.
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Huge upside ahead for Megaport shares
In its note, the broker has confirmed its outperform rating on Megaport shares. Its analysts have also hiked its 12-month target price up to $21.70, up from $18.50 previously.
At the time of writing, this implies a huge potential 60.7% upside for investors over the next 12 months.
Last month, Megaport said it had acquired Latitude.sh, a global Compute as a Service platform.
Macquarie said it has revised its EPS earnings and EBITDA number to incorporate Latitude numbers. The broker said its increased target price reflects these EPS earnings changes.
"We revise FY26/27/28/29E EPS by n.m/n.m/+212%/+163%. The law of small numbers is at play, with EBITDA changes more meaningful at +9%/+101%/+106%/+108%. With the $200m placement now complete, our earnings changes reflect the incorporation of Latitude numbers. We assume the initial A$132m capex is spread over FY26 & FY27, with further growth reinvestment presenting downside to these numbers," the broker said in its note.
"Top line is stabilised, Latitude adds a new growth driver in a fast-growing end market. Reinvestment in growth will drive further top-line acceleration out of FY26. Product roadmap suggests MP1 will move more into software with edge compute, driving higher long-term margins. Retain Outperform," the broker added.
What else did the broker have to say?
While customers already consume compute products, Megaport has not historically offered compute solutions. This means Latitude's product is highly complementary to Megaport's existing offerings and provides a direct entry into a large, fast-growing end market. Early traction is evident with new customer wins, including Stripe, Mercado Livre, and Grok. Latitude also strengthens exposure to blockchain applications.
Macquarie also commented that Latitude CPU (central processing units) are strong. All Latitude SKUs are expected to achieve positive internal rates of return within the first one to two years, even after factoring in a 3–6 month ramp period.
"Industry conversations confirm CPU useful lives are 6-7 years, with examples of operation beyond this time. We understand Latitude currently assumes an accounting useful life of 5 years, slightly longer than a tax useful life of 4 years. This leads to a minor tax shield on CPU capex," the broker said.
