NextDC Ltd (ASX: NXT) shares came under pressure on Tuesday, finishing 2% lower to $12.70.
The pullback extends a broader decline that has seen the data centre operator's shares fall nearly 15% from their 5 December peak of $14.90.
This has occurred despite no material downgrade to the company's long-term outlook. While short-term sentiment has cooled, broker confidence appears to be improving.
NextDC is currently rated a strong buy, with analysts pointing to meaningful upside from current levels.
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What are brokers saying?
Broker consensus points to an average price target of around $19 to 22 per share, implying potential upside of roughly up to 70% from yesterday's closing share price.
Support for NextDC remains widespread among brokers. The majority of covering analysts' rate NextDC as a buy, with no sell recommendations currently on the table. Several brokers have also reaffirmed or lifted price targets in recent weeks, even as market volatility has increased.
Why the NextDC investment case remains strong
NextDC owns and operates some of Australia's most critical digital infrastructure, servicing hyperscalers, government agencies, and large enterprises. While the business is capital intensive, earnings visibility continues to improve as new capacity is contracted.
At its latest update, the company reported pro-forma contracted utilisation of more than 300MW, alongside a forward order book exceeding 200MW. Much of this capacity is expected to convert into revenue between FY26 and FY29, supporting broker forecasts for accelerating earnings growth.
Management has also maintained FY26 guidance, helping to reassure the market around execution risk.
The AI tailwind the market may be underestimated
A key driver behind broker optimism is NextDC's growing role in Australia's sovereign AI infrastructure. The company recently announced it had joined OpenAI as an infrastructure partner, with plans to develop and operate a GPU supercluster in Sydney.
Brokers believe AI-related workloads could materially lift long-term demand for high-density data centres, with NextDC well positioned to benefit. Several analysts have also noted that this opportunity is unlikely to be fully reflected in near-term earnings models.
Why the share price has fallen?
The recent sell-off appears driven by short-term concerns around capital expenditure, funding requirements, and valuation multiples, rather than any deterioration in operating performance.
With earnings growth weighted towards later years, some investors have chosen to step aside. Many brokers, however, argue that this disconnect between near-term costs and long-term cash flows is exactly why NextDC looks undervalued today.
The bottom line
While near-term volatility remains, broker sentiment suggests the market may be overlooking a high-quality infrastructure business with powerful long-term tailwinds.
For investors willing to take a longer-term view, NextDC is increasingly being labelled by brokers as one of the ASX 200's most undervalued growth opportunities, and one I'll be adding to my watchlist.
