NextDC shares (ASX: NXT) staged a partial recovery today, reclaiming top spot on the ASX 200 just 24 hours after suffering one of the index’s most brutal single-day selloffs in recent memory. The rebound, driven by bargain hunters and a high-profile analyst defence from Macquarie, does little to erase the damage but raises serious questions about whether the market overreacted to what is, at its core, a timing problem rather than a structural one.
The NextDC share price closed Thursday at A$5.75, up 7.48% on the day, after bottoming out at A$5.35 in Wednesday’s session following a staggering 41.72% collapse that wiped more than A$3 billion from the company’s market capitalisation in a single day. The stock’s move from the very bottom of the ASX 200 to the very top in consecutive sessions may seem like a rare event, but in reality, after a 41% drop in a day, even a partial rebound could be considerable.
What Caused The Sell-Off?
Wednesday’s historic selloff came following a severe guidance downgrade tied to an unexpected operational setback at NextDC’s flagship M3 Melbourne data centre. Power distributor Jemena Electricity Networks suspended 66kV grid connection works required to scale electricity supply at the site, citing community opposition, site access difficulties, safety concerns, and the absence of local council consent. Jemena has indicated the works will remain paused until at least February 2027, pushing the additional grid capacity NextDC was counting on firmly into FY28 territory.
The knock-on effect for NextDC’s financial guidance was severe, as the company was forced to strip out an entire 213MW customer contract at M3 from its FY27 forecasts, resulting in a roughly 36% reduction in underlying EBITDA guidance to a range of A$245 million to A$265 million, down from the prior A$385 million to A$410 million range. Net revenue guidance was cut to A$475 million to A$500 million from A$615 million to A$640 million. Capital expenditure guidance was also trimmed to A$4.5 billion to A$5.0 billion from A$5.25 billion to A$5.75 billion, as NextDC moved to pause all uncontracted land acquisitions and new development activity.
The company flagged additional risks beyond the headline numbers, including potential service-level credits and contract termination exposure if power delivery delays trigger breach clauses, though NextDC is actively exploring force majeure relief provisions. Management also warned that M3 billing delays could restrict the company’s ability to draw down from its A$6.7 billion in undrawn senior debt facilities, even as total liquidity stands at A$8.68 billion.
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An Over-Reaction?
Macquarie moved quickly to address what it characterised as an outsized market reaction, retaining its Outperform rating on NextDC while cutting its 12-month price target by 35% to A$12.90 from A$19.70. Even after that significant reduction, the revised target implies upside of approximately 124% from Thursday’s closing price of A$5.75, and roughly 141% from Wednesday’s close of A$5.35.
Why the continued support? Well firstly, they do not believe NextDC needs to raise equity capital. Under Macquarie’s own bear case scenario, interest coverage remains at 1.67 times, comfortably above the 1.5 times threshold stipulated in the company’s lending covenants. Then the company’s own official guidance excludes approximately A$74 million of FY27 EBITDA that the 55MW of capacity already delivered at M3 could still generate, suggesting the reported numbers may understate the near-term earnings base.
There is also the fact that NextDC’s current market capitalisation of approximately A$4.1 billion sits well below its estimated A$9.5 billion replacement cost for the company’s data centre assets, a gap it describes as a compelling valuation anomaly. Macquarie also pointed out that pausing speculative development capex could push NextDC’s free cash flow yield above 10% by FY31.
Macquarie cut its EBITDA forecasts by 35% for FY27 and 23% for FY28, acknowledging the real financial impact of the Jemena delay while stopping well short of abandoning its constructive long-term view on the stock.
Bull Case:
- Macquarie sees 124% upside, retaining Outperform with A$12.90 revised target price.
- Market cap of A$4.1bn trades at a steep discount to A$9.5bn asset replacement cost.
- No equity raise needed; interest cover of 1.67x safely clears the 1.5x lending covenant.
- Pausing growth capex could push free cash flow yield above 10% by FY31.
- Demand fundamentals unchanged; delay reflects grid access issues, not customer weakness.
Bear Case:
- Historic 41.7% single-day collapse signals deep loss of institutional confidence.
- FY27 EBITDA guidance slashed 36%; FY28 forecasts cut 23% by Macquarie.
- Jemena power works paused until at least February 2027, delaying revenue recovery.
- Contract termination and service-level credit risks remain unresolved legal exposures.
- Senior debt drawdown restrictions could limit financial flexibility during the delay period.
