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Why I recently bought NextDC (ASX: NXT) shares

NextDC Ltd (ASX: NXT) shares have been my most recent purchase on the ASX. While the NXT share price chart over the past couple of months hasn’t looked fantastic, compared to some other technology shares, I saw this as an attractive buying opportunity. Here’s why…

Source: Rask Media NXT 6-month share price chart

About NextDC

NextDC is a data centre operator with multiple centres across Melbourne, Sydney, Brisbane, Perth and Canberra. Organisations that store critical applications and data “in the cloud” can use NextDC’s facilities to physically store this information securely.

Although it’s labelled a tech business, NextDC is more of an infrastructure play that requires large amounts of capital expenditure to construct new data centres.

Why has the NXT share price fallen recently?

When the first COVID-19 vaccines were announced at the beginning of last month, investors seemed to have ‘rotated’ out of shares, which performed extremely well over the lockdown period, and switched into ‘recovery’ stocks that would benefit from an economic reopening.

Some of the ASX’s digital retail companies had the best runs, including Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW).

Why I bought NextDC shares

I think the pullbacks for a few of the ASX’s retailers might have been justified, but I don’t think the same regarding NextDC. Regardless of the state of the economy (whether it’s open or not), there will always be a high demand for data storage.

It’s no secret that COVID-19 has brought forward rapid technology adoption through the work-from-home revolution and other changes in consumer behaviour. NextDC is perfectly positioned to take advantage of these structural changes, and being one of Australia’s largest data centre operators, it has an advantage over some of the smaller players through its large physical footprint and high-storage capacity centres.

NextDC hasn’t shown any signs of slowing down over the next few years either, with new data centres currently being built across many Australian capital cities.

At the end of last month, the company also announced it had upsized its debt facilities by $350 million, bringing the total amount to $1.85 billion. These funds, split across three tranches, will be used as a funding runway to continue to invest in facilities to support growth in key markets.

Summary

These are just some of the reasons why I think NextDC could make a strong investment over these next few years. Please remember, there are risks. Definitely, NextDC faces stiff competition, execution risk and must invest sensibly for many years in order to produce sustainable returns for shareholders.

That said, I try to look for companies with structural tailwinds that I believe are sustainable, rather than once-off, and I believe NextDC fits the criteria quite well.

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At the time of publishing, Patrick owns shares in NextDC Limited.

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