The Nextdc Ltd (ASX: NXT) share price is down around 40% after the company gave a disappointing update.
Nextdc is one of Australia’s largest data centre businesses, with a number of locations around Australia and other Asian locations.
M3 Melbourne power delay
The company said that the M3 Melbourne data centre is affected by delays to third-party electricity network works, particularly the 66kV line augmentation works of Jemena, which is the electricity distributor that supplies power to M3.
Jemena suspended parts of those works in September 2026 and then formally notified Nextdc that it does not expect to recommence before February 2027.
Jemena attributed the suspension to safety concerns and lack of access to work sites because of community and stakeholder opposition to the works and to the local council, as the relevant road authority, not giving its consent while further community consultation takes place.
Nextdc said it already engages with the community around M3, including through dedicated community engagement staff and newsletters on works and activities at the site, it intends to continue and build on that through a community engagement plan for the construction and operation of M3.
Grid supply at M3 is expected to increase in stages. The first increase depends on Jemena’s works and the ASX share now expects that increase during FY28, with delivery and billing of the contracted capacity that depends on it to follow shortly after that.
Other elements of the M3 stages are also taking longer, including the Brooklyn Terminal Station and the Victorian Government’s planning decision on a planning permit for stage 6 and stage 7.
Downgraded FY27 guidance
Nextdc is assessing the potential implications of the delays in relation to affected customer contracts, which provide for service level credits where capacity is delivered late or not fully powered. In some cases, the customer has a right to terminate.
Net revenue for FY27 is now expected to be between A$475 million to A$500 million, down from the previous guidance of between A$615 million to A$640 million.
Underlying EBITDA (EBITDA explained) is now expected to be between A$245 million to A$265 million, down from the previous guidance of between A$385 million to A$410 million.
Nextdc said it’s working with the affected customer on a revised power ramp. Capacity already billing is excluded because, while parts of Jemena’s works are suspended, existing grid supply at M3 cannot be relied on to support the full contracted power ramp in data halls already delivered.
Service level credits payable on affected contracts could reduce underlying EBITDA below the revised guidance.
It also reduced its capital expenditure guidance to between A$4.5 billion to A$5 billion, a reduction of $750 million from the previous guidance.
Outlook for the Nextdc share price
I mentioned a few months ago that Nextdc and other data centres were facing increased scrutiny based on “their energy usage, water usage, land usage and noise pollution, so this could hamper Nextdc’s growth in the future.” That already seems to be playing out, sooner than I was expecting.
The company said that it has put all new development projects and land acquisitions on hold for the foreseeable future to prioritise near-term contracted customer capacity.
It will consider the potential sale of selected development sites that are not required in the near term.
At this much lower price, it may be undervalued (or perhaps not). But the questions I asked last time is still relevant, in my view. How long will the actual economic life of these assets be? Will new technology make them less valuable quickly? Are the assumptions reasonable?
It’s not one of the ASX growth shares I’m looking at because of questions in my mind about how sustainable net profit generation is.
