Megaport Ltd (ASX: MP1) shares are catching the eye on Monday morning.
At the time of writing, the network solutions company's shares are up 9% to $9.73.
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Why are Megaport shares rising today?
Investors have been bidding the company's shares higher following the announcement of a major new customer contract through its recently acquired Latitude.sh business.
According to the release, Megaport has secured a three-year compute and storage contract with a total value of approximately US$25.1 million (A$35.4 million).
This equates to around US$8.4 million in annualised recurring revenue, providing a meaningful boost to its contracted income base.
The customer behind the deal is described as a US-based, high-growth technology company operating in the developer tooling sector, with exposure to enterprise demand for AI-driven applications.
Commenting on the deal, Megaport's CEO, Michael Reid, said:
Securing a contract of this size reflects both the scale of the opportunities we see in the compute market, and our disciplined approach to deploying capital. We will continue to evaluate similar opportunities, investing alongside committed customer demand at compelling paybacks, ensuring capital is deployed after rigorous analysis while supporting the long-term growth of these markets.
The explosion in AI use cases is driving incredible demand for compute and storage, with CPUs remaining a critical component of the infrastructure that powers AI. As businesses increasingly seek flexible, high-performance automated infrastructure, Megaport is perfectly positioned to capture a growing share of this rapidly accelerating opportunity.
Positioned for AI-driven demand
Megaport revealed that business has been booming for its compute division.
Latitude.sh's compute annual recurring revenue, excluding this new contract, has already increased 31% since the end of December to US$58.7 million.
The good news is the company believes it is well positioned to capture growing demand for compute and storage, particularly as artificial intelligence (AI) workloads continue to expand.
To support the contract, Megaport will invest approximately US$12.2 million in additional CPU server hardware. This investment is expected to deliver an attractive payback period of around 24 months.
Importantly, once the contract ends, the hardware will remain within the Latitude.sh platform and can continue generating revenue through renewals or new customers.
Network business
Alongside the contract win, Megaport revealed that its core network business continues to perform strongly.
Megaport Network annual recurring revenue reached A$272 million at the end of March, representing growth of 23% on a constant currency basis.
This reflects ongoing demand for its software-defined connectivity services across global markets.
All guidance (revenue, EBITDA, and capex) for FY 2026 has been reaffirmed. However, its capital expenditure guidance may increase slightly if compute hardware is delivered earlier than expected.
