NEXTDC Ltd (ASX: NXT) shares have suffered an extraordinary sell-off on Wednesday.
The data centre operator's shares have fallen as much as 45% to $5.10 following an announcement that has raised serious concerns about its near-term outlook.
It is a significant setback for a company that has been investing heavily to capitalise on growing demand for data centre capacity.
But has the market reaction created an opportunity for long-term investors? Here's what I think.
Image source: Getty Images
What has happened to NEXTDC?
The main issue is a delay in delivering electricity to NEXTDC's M3 Melbourne data centre.
Electricity distributor Jemena has suspended parts of the network works required to increase power supply to the facility, citing community opposition and difficulties obtaining the necessary approvals.
NEXTDC now expects the next increase in power supply during FY28, delaying its ability to deliver and bill customers for contracted capacity.
This has forced management to make substantial reductions to its FY27 guidance.
Underlying EBITDA is now expected to be between $245 million and $265 million, down from its previous forecast of $385 million to $410 million.
Net revenue guidance has also been reduced from $615 million to $640 million to between $475 million and $500 million.
Those are significant downgrades, and I can understand why investors are concerned.
There is also uncertainty surrounding the affected customer contracts, which include provisions for compensation or potential termination if capacity cannot be delivered as agreed.
A separate planning decision for further expansion at M3 has also been delayed until 2027.
Clearly, NEXTDC has some difficult issues to work through.
Why I would buy NEXTDC shares
Despite these setbacks, I still believe NEXTDC has an exciting long-term future. The company is developing critical infrastructure for cloud computing, artificial intelligence (AI), and the broader digital economy.
I expect demand for these services to increase considerably over the coming decade as businesses invest in more computing capacity. And I think NEXTDC remains well positioned to participate in that growth.
One important detail from today's announcement is that the affected M3 capacity remains contracted, subject to the customer's rights.
That gives me some hope that a substantial portion of the delayed revenue could eventually be realised once the electricity issues are resolved.
Management is also taking steps to protect the business. NEXTDC has reduced its capital expenditure guidance and is prioritising projects supported by near-term customer contracts.
It reported approximately $8.7 billion in available liquidity at the end of September, although most of this comprises debt facilities and access remains subject to conditions.
I think the decision to focus spending on contracted capacity is sensible while the company works through the uncertainty.
For me, the investment case remains centred on the enormous demand for data centre infrastructure over the next decade. At around $5.10, I think the potential long-term rewards for investors could be substantial if NEXTDC can resolve its current problems and deliver on its contracted growth opportunities.
Foolish takeaway
I think Wednesday's extraordinary sell-off has created an opportunity to buy NEXTDC shares for the long term.
There could be considerable volatility ahead, and the problems at M3 will take time to resolve.
But I would be willing to accept that uncertainty for the opportunity to own a business operating in what I believe will be one of the world's most important growth industries over the coming decade.
