It is fair to say that Megaport Ltd (ASX: MP1) shares have been on fire this year.
Since the start of the year, the cloud infrastructure provider's shares have risen a massive 70%.
As a comparison, the S&P/ASX 200 Index (ASX: XJO) is down around 1.1% over the same period.
But if you thought the gains were over, think again. That's because Bell Potter has just initiated coverage on Megaport and believes there's plenty more upside on offer here for investors.
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What is the broker saying?
Bell Potter notes that Megaport provides investors with exposure to the strong growth in inference compute demand. It explains:
Megaport provides one of the few direct exposures on the ASX to a neocloud provider and, in particular, the strong growth in inference compute demand. Even if and when other neocloud providers like Firmus and/or Sharon AI list on the ASX, Megaport provides differentiated exposure as it is building a globally distributed AI inference cloud – which is less capital intensive – rather than building the physical AI factories or data centres themselves.
The broker was also pleased to see that the company is collaborating with Nvidia (NASDAQ: NVDA), which provides better access to in-demand GPUs. It adds:
Last month NVIDIA announced it was "collaborating with a growing ecosystem of Australian NVIDIA Cloud Partners (NCPs) and AI infrastructure partners to expand land, power and shell capacity" and Megaport was named as one of the partners. This collaboration provides numerous advantages – including better access to GPUs and improved ability to sell to AI native companies – and also validates Megaport's model and its differentiated approach to providing inference compute.
Strong growth
Bell Potter believes the above leaves Megaport well-placed to deliver very strong growth over the coming years.
In fact, it expects EBITDA to grow from $77 million in FY 2026 to $726 million in FY 2028. It explains:
We forecast underlying EBITDA to grow from $77m in FY26 to $329m in FY27 and $726m in FY28. This forecast strong growth is largely underpinned by strategic contracts which are being rolled out this year. Our forecasts are also supported by Megaport saying the annualised EBITDA run-rate will be >$650m once all the strategic contracts are billing. Importantly, all the capex required for the roll out of the strategic contracts is fully funded.
Should you buy Megaport shares?
According to the note, Bell Potter has initiated coverage on Megaport shares with a buy rating and $27.00 price target.
Based on its current share price of $20.25, this implies potential upside of 33% for investors over the next 12 months.
Commenting on its recommendation, Bell Potter said:
We initiate coverage of Megaport with a BUY recommendation and $27.00 target price. The TP is generated through a blend of an EV/EBITDA and DCF valuation where we apply a 10.0x multiple to our underlying FY28 forecast in the former and a 10.1% WACC and 3.5% terminal growth rate in the latter. In our view Megaport looks value trading on an FY28 EV/EBITDA multiple of c.7x when the median multiple of the domestic comps is c.15x (based on FY28 forecasts) and international comps is c.11x (based on 2027 forecasts).
