NextDC Shares Jump 9% as Data Center Operator Eases Debt Fears With $8.7 Billion Liquidity and Covenant Update

NextDC Ltd shares jumped more than 9% on Wednesday. The data center operator moved to reassure investors about its financial position, a week after a profit warning sent its stock plunging to an eight-year low.

NextDC shares rose 54 Australian cents, or 9.39%, to close at A$6.29. In the session they traded between A$5.95 and A$6.45. Nearly 17 million shares changed hands, making it one of the most actively traded stocks on the Australian Securities Exchange. The gain lifted the company's market value to about A$4.8 billion.

Despite the rebound, the stock is down about 61% over the past year and remains well below its 52-week high of A$16.78.

The broader S&P/ASX 200 ended almost flat, down 0.03% at 8,847.3, after giving up early gains following hotter-than-expected inflation data.

Covenant and liquidity update

On Wednesday, NextDC released an update on its debt covenants and liquidity, aimed at easing concerns that problems at one of its Melbourne sites could escalate into a financing crisis.

The company said:

It met both of its financial covenants at June 30, its most recent testing date. Its gearing ratio was 8.2%, well below the maximum of 60% allowed under its lending agreements. Its pro forma interest cover was 5.91 times, against a minimum of 1.5 times. That calculation excluded expected earnings from the affected customer contracts at its M3 Melbourne facility. Management expects to remain compliant at the next covenant test in December.

NextDC also said it had A$8.675 billion of liquidity at the end of September, including A$1.275 billion in cash. The rest consists of undrawn debt facilities, which are subject to conditions and continued covenant compliance.

Analysts said the update addressed one of the market's biggest worries after last week's sell-off.

Profit warning triggered plunge

The rebound follows a dramatic slide. On Oct. 21, NextDC shares crashed more than 40% in a single session after the company slashed its earnings guidance.

NextDC said electricity network company Jemena had delayed infrastructure upgrades needed to power its M3 data center in Melbourne. As a result, some contracted capacity cannot come online as planned.

The company cut its fiscal 2027 underlying EBITDA guidance to between A$245 million and A$265 million, from its previous forecast of A$385 million to A$410 million. It said it expects the power supply upgrade to be completed during fiscal 2028.

NextDC also warned that affected customers have contractual rights that could lead to compensation payments or contract cancellations, adding to uncertainty about future earnings.

Bargain hunting

The shares have bounced from their lows over the past week as some investors and brokers argued the sell-off had gone too far. The stock rose about 7% on Oct. 22 and rose in early trading on Tuesday and Wednesday.

Some brokers have said the shares could more than double from current levels over the next year, according to market reports. Others remain cautious until there is more clarity on the M3 delays and any customer claims.

AI data center boom

NextDC is one of Australia's largest data center operators. It builds and runs facilities that house computer servers for cloud providers, enterprises and government agencies.

The company had been one of the market's top performers on expectations that the artificial intelligence boom would drive huge demand for data center capacity. Global technology giants have been spending heavily on AI infrastructure, and Australia has been a growing destination for data center investment.

The M3 problems highlight a key constraint facing the industry: access to electricity. Data centers require enormous amounts of power, and delays in grid connections or upgrades can hold back growth even when customer demand is strong.

RBA Governor Michele Bullock said on Wednesday that heavy investment in data centers was adding to demand in the Australian economy and contributing to inflation pressure.

Global AI sentiment

NextDC's rebound coincided with renewed optimism about AI stocks globally. Shares of chipmakers and AI-related companies rallied in the United States and Asia this week after Anthropic, the developer of the Claude AI models, filed for an initial public offering.

Investors are also watching quarterly results this week from Alphabet, Microsoft, Amazon and Meta Platforms. Their spending plans are closely tied to global demand for data center capacity.

What to watch

Investors will focus on any further updates about the timing of the M3 power upgrade, whether affected customers seek compensation or cancel contracts, and the company's ability to sign new customers at its other facilities.

_This article is for information only and does not constitute financial advice._