Nvidia's Earnings: Why the Dip Is a Golden Opportunity in Disguise
NextDC Deep Dive:
When a REIT Wears Tech Clothing
Quick question: What do you think about NextDC as an investment?
I've been getting a lot of questions about this, so I wanted to break it down for you—Value3 style.
The AI, Cloud Computing, and Data Centre Gold Rush
AI and cloud computing are blazing hot right now, and investors are scrambling to find their golden ticket. Here in Australia, many see NextDC as the ultimate play. But is that true?
A REIT Disguised as a Tech Stock?
In 2024, the “Magnificent Seven” (Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta, and Tesla) collectively surged 63%, following a 75% jump in 2023. No wonder investors want in on the action. AI needs a massive amount of computing power, and that’s fuelling demand for data centres. That’s where NextDC comes in.
On the surface, it looks like a high-flying tech company. But in reality? I think it’s a real estate business in disguise.
Founded in 2010 by entrepreneur Bevan Slattery (also behind Superloop, Pipe Networks, and Megaport), NextDC now operates 17 data centres across Australia.
If you’ve ever used a smartphone, computer, or tablet—chances are, your data has passed through a facility like theirs. Data centres are essential infrastructure in our digital world.
Since listing, NextDC’s market cap has skyrocketed from $80 million to <$7 billion, making it the ASX’s biggest data centre stock and second in the region after US-listed Equinix.
There’s no doubt about the megatrends driving this growth—cloud computing, IoT, AI—the list goes on. In fact, a JLL report predicts that by 2030, the number of internet-connected devices in Australian homes will double, requiring at least 175 new data centres!
So, what’s the catch?
By the Numbers
- Market cap: $80M (2010) → $7B (2024)
- ASX's largest data centre stock
- JLL predicts 175+ new Australian data centres needed by 2030
The Capital-Hungry Reality
Unlike software businesses (or even other REITs), data centres are brutally expensive to build and operate:
Land Costs
10% of total expenditure
Construction
20% of total costs
Fit-Out
60-70%
Cooling, power, racks, security
(Does not include computers)
Note: NextDC operates on a Co-location basis where clients supply their own compute.
Power Reality
12x → 60x
"Data Centre build costs will climb even higher given the complexity of managing NVIDIA's chips with liquid cooling..."
Current Blackwell NVL72 to next-gen Vera Rubin NVL576 power requirements.
- Nick Hume, US Tech Lead
So, why would NextDC go public in the first place?—It needed lots of capital.
Now, expansion is happening at full throttle. Capex went from $690 million (FY23) to $1 billion (FY24), and will hit $1.4 billion (FY25) to push into Asia-Pacific.
And how is all this being funded? Endless capital raises.
The Dilution Disaster
Since listing at $1 per share in 2010, NextDC has raised capital again and again. On paper, the stock price has climbed past $13, which looks great—until you factor in dilution.
Share Count Explosion
80M → 500M shares
Original $1 shares now worth 15¢
Cash Burn
FY23: $690M
FY24: $1B
FY25: $1.4B (projected)
That’s why NextDC has never paid a dividend or bought back shares. But of course they would need to be profitable to do either. Meanwhile, Equinix—its US-listed local competitor—started paying dividends in 2015 while growing EPS at ~10% per year.
So, will it ever be? Not anytime soon.
Right now, NextDC isn’t even close. It’s not expected to turn a profit until 2028 at the earliest—and that’s assuming they don’t keep ramping up spending. More likely, more dilution is on the way.
The “Home Bias” Trap
Over the years, I’ve seen Australian investors fall into the home bias trap—favouring local stocks and paying way higher multiples, for the same earnings growth, when there are far better options and value in the USA.
NextDC is a prime example. The Australian market is tiny (less than 2% of global equities) and heavily skewed toward banks, resources, and retail. Even in this small pond, tech is underrepresented. Our 3 top tech stocks all trade at nose bleed PE Ratio's PME Pro Medicus 244X; WTC Wisetech Global 112X and TNE Technology One 80X.
Meanwhile, there are plenty of better ways to play AI and cloud computing with stronger financials and actual profitability.
I’ll be covering some of those opportunities in future Insider letters—so stay tuned!
Bruce Carmichael our brilliant financial engineer will run you through NextDC’s financials normalised on our V3 & KeyMet analysis tools. Even if you are not interested in NextDC it is worth watching as it will provide insight into how we analyse companies and why we are not interested in NextDC.
Meanwhile, there are plenty of better ways to play AI and cloud computing with stronger financials and actual profitability.
I’ll be covering some of those opportunities in future Insider letters—so stay tuned!
Bruce Carmichael our brilliant financial engineer will run you through NextDC’s financials normalised on our V3 & KeyMet analysis tools. Even if you are not interested in NextDC it is worth watching as it will provide insight into how we analyse companies and why we are not interested in NextDC.
Changing gears...
Tesla: Making headlines for the wrong reasons
It's hard to miss the negative headlines about Tesla and Musk, yes, I've seen them too.
As an investor in Tesla, (I’ve owned shares since 2023), I’ve been following the business closely and remain highly optimistic about its likely success and TSR over the next 5 & 10 years
I believe the current market situation is much like it was for Meta in 2022. All market commentators had totally soured on Mark Zuckerberg, and Meta’s price crashed 77% from $384.33 to $88.10 at the low. It then went on 600+% run over the next 2 years.
In hindsight it was an incredible buying opportunity, the business was very strong and highly profitable and anyone who was psychologically strong enough to ignore the crowd and buy, did handsomely and hopefully hasn’t sold.
With Tesla down 50% and Elon Musk on the nose, burning Tesla's in the street, it certainly feels like a case of de-ja-vu to me.
Meta 2022
77% price drop
600% rebound
Profitable throughout
Tesla 2024
50% drawdown
FSD v12 launch
Optimus prototypes
As the market commentators focus on Musk’s controversies, they have taken their collective 'eyes of the ball' ignoring groundbreaking developments & implementations happening with Tesla’s FSD (Full Self Driving), Robo cabs, launching in Austin Texas in June, Energy and Humanoid Robotics (Optimus) which are likely to become a massive industry. For me - I smell opportunity.
Whilst I'm not here to debate the merits of Elon’s political activities (I'll leave that to the pundits!), I lay out a strong case for Tesla’s business prospects to 10X in 5 years in my Insiders webinar, which, if you haven't seen it, you can watch below.
Tesla 10X Potential Analysis
There’s no doubt Tesla has emerged as one of the more controversial companies out there, and with that there’s bound to be a wide range of opinions. If you’d like to share your take on Tesla’s outlook, I'd love to hear from you.
All opinions are welcome at Value3!
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Mark Moreland and Nick Hume own shares in Tesla. Bruce Carmichael does not own shares in any companies mentioned. The information provided by Value3 is general in nature and does not consider your personal circumstances. Past performance is not indicative of future results. Always consult a financial advisor before making investment decisions. Value3 and BR Securities Australia Pty Ltd disclaim liability for any losses arising from reliance on this information.
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