Where could Megaport shares be in 12 months?

Megaport Ltd (ASX: MP1) has become one of the more interesting ways to invest in the artificial intelligence (AI) boom.

The technology company has been securing major contracts as demand for computing power continues to grow.

And with its shares trading around $18.13, some analysts believe there's considerable upside over the next 12 months.

So, just how high could Megaport shares climb?

Brokers tip major upside

Two leading brokers have recently expressed confidence in Megaport's growth prospects.

According to a note from Morgans this month, it has a buy rating and a $27 price target, suggesting potential upside of approximately 49%.

A note from Bell Potter in October reveals that it is almost as optimistic, with a buy recommendation and a $26 target. This implies a potential return of 43%.

I don't think it is hard to see why they are positive on Megaport shares. In September, the company announced three new AI infrastructure contracts worth approximately $1 billion.

These agreements involve providing computing power, networking, and storage services to customers developing and running AI applications.

And they have already prompted management to upgrade its earnings outlook.

Megaport raised its FY27 revenue guidance to between $720 million and $810 million, while increasing its expected EBITDA margin to between 42% and 44%.

I think that's encouraging evidence that its expansion into AI infrastructure is gaining momentum.

Why earnings could grow materially

What I arguably like most is how much additional revenue and profit Megaport could generate as its new contracts become operational.

The company has invested heavily in building its computing infrastructure, including expanding its capacity to provide customers with access to powerful graphics processing units (GPUs).

These are the specialised chips used to run demanding AI applications.

And according to Bell Potter, the opportunity could be substantial. The broker estimates Megaport's GPU pool could eventually generate approximately $200 million in annual underlying EBITDA when fully utilised.

With that business expected to ramp up during the first half of FY28, Bell Potter believes it could contribute around $100 million in that financial year.

Combined with Megaport's existing operations, the broker now expects FY28 underlying EBITDA of approximately $770 million.

Morgans is similarly enthusiastic, suggesting Megaport's expanding network and computing businesses provide a path towards annualised EBITDA exceeding $850 million.

I think those forecasts demonstrate how significantly Megaport's earnings could increase as its recent investments start delivering returns.

And with its established network services business continuing to grow, there are opportunities beyond its AI computing contracts.

What could go wrong for Megaport shares?

Of course, these expectations depend heavily on the continued expansion of AI infrastructure spending.

If enthusiasm for AI fades, or businesses begin cutting back their investment plans, demand for computing capacity could weaken.

That could put pressure on Megaport's growth forecasts and the valuation investors are prepared to pay for its shares.

There's also the substantial cost of building and maintaining this infrastructure. Megaport has increased its FY27 capital expenditure plans to as much as $1.88 billion, making it important that new contracts deliver sufficient returns.

And while EBITDA growth is encouraging, I would also want to see that investment eventually translate into stronger cash generation.

Foolish takeaway

I think both Morgans' $27 target and Bell Potter's $26 valuation are achievable over the next 12 months, although there's no guarantee the market will agree.

Megaport is building a much larger business, and its recent contract wins give me confidence that demand for its services is strong.

There could be considerable volatility if sentiment towards AI changes, but I believe the longer-term opportunity is worth pursuing.

At current levels, I would be happy buying Megaport shares and giving management time to deliver on its ambitious growth plans.