Data centre companies have been a hot property over the past year as the rapid uptake in artificial intelligence has driven the need for large amounts of computing power.
One of the beneficiaries of this has been Megaport Ltd (ASX: MP1), which delivered a record first-half result back in February.
The Citi team have had a look at the company and has a seriously bullish price target on the company's shares, which we'll get to later.
Image source: Getty Images
Strong demand for services
Firstly, let's look at why they're so enthusiastic about this stock.
One of the reasons is the rapid take-up of Megaport's compute as a service offering, Latitude, which the company acquired in November last year.
The company said at the time:
This acquisition brings Megaport's global Network as a Service (NaaS) platform together with Latitude.sh's compute platform to build an industry-leading platform where network and compute converge globally. This positions Megaport at the heart of the hybrid cloud and AI-driven future.
The Citi team said Latitude's graphics processing unit (GPU) capacity was sold out, which was a big positive.
According to Latitude's announcement, they had added 1,000 GPUs earlier this year and assuming a per GPU monthly rental rate of ~US$1,500 and assuming 100% utilisation would imply incremental annual recurring revenue (ARR) of US$18 million from the new GPUs. This is likely overstated as there could be discounts that could be provided but compares to our incremental ARR forecast of US$12.5 million in 2H26 and US$19 million in 1H27. The surge in GPU rental demand, Latitude's GPUs being sold out, as well as Latitude increasing prices, suggest upside risks to our Latitude ARR and FY27 revenue forecasts all else equal.
Citi said prices seem to have gone up as well.
Big first half
Megaport themselves said, in releasing their first-half results in February, that it was a record half, with ARR up 49% year on year to $338 million.
Chief Executive Michael Reid said at the time:
Our team delivered an outstanding first half performance, demonstrating the strength and resilience of the underlying business. Importantly, we achieved this while completing two strategic acquisitions and executing a successful capital raise. These initiatives extend our platform into adjacent markets and position Megaport for accelerated growth across Network, Compute, and AI.
Megaport's guidance for the full year was for revenue of $302 to $317 million, and EBITDA of 21% to 24% of revenue.
Citi's price target on Megaport shares is $14.65, compared to the current price of $8.49.
Megaport was valued at $1.45 billion at the close of trade on Thursday.
