Market News 27 October 2026

Johnny Lee writes:

Investors in the data centre industry had an eventful week, as the sector continues to face questions around both valuations and social license. 

NextDC, an Australian data centre operator with 17 facilities in Australia and one in Malaysia, revised its revenue guidance range from $625 million to $485 million (at the midpoint).

This accompanied a second statement, which announced that Australian electricity infrastructure company Jemena had suspended its plans to increase grid supply to facilitate the development of NextDC’s M3 data centre in Melbourne.

The suspension was attributed to “community and stakeholder opposition.” 

NextDC’s share price plummeted around 40% following the announcement, equivalent to approximately $4 billion of value. The share price is down over 50% for the year.

The board responded by cancelling its plan to ask for a shareholder vote on increasing director fees, instead voluntarily choosing to reduce some director fees. At the same time, the Chairman has announced his intention to retire from the board, once a successor has been found.

The bad news for NextDC shareholders did not end there.

To make matters worse, lawyers in Australia are said to be preparing a class action against the company, with concerns around continuous disclosure requirements. A2 Milk faced a similar action some years ago, which may soon lead to confirmation of settlement.

Opinions on these class actions vary. Certainly, those who purchased a day prior at $9 a share will feel aggrieved, and tensions should exist to ensure companies keep all investors informed as practicality allows. Others may see these actions as “circular” – with companies paying for insurance and insurance paying shareholders of the companies.

Continuous disclosure itself can be a challenging topic for boards to navigate. Shareholders do not expect to be notified of every single piece of information that comes across the boardroom table. However, a downgrade of this magnitude would have been considered carefully and released promptly – the question will be one of timing.

While very few New Zealand investors would have direct exposure to NextDC, New Zealand is exposed to this sector through Infratil, our fourth largest listed company and a major component of many of our local KiwiSaver accounts. 

The decline in NextDC’s share price value was so significant that it prompted a formal response from Infratil.

It confirmed that its timelines have not seen disruption, and that its guidance remains unchanged. Infratil’s half year result is due on 18 November.

Infratil’s share price has seen its own declines of late, as investors quietly take profit following a strong share price run. It is worth noting that Infratil CEO Jason Boyes recently purchased 81,513 shares, valued at almost a million dollars. Director Alison Gerry also took advantage of the share price decline to increase her holding.

It would be hard to miss the growing concern around the valuation of data centre companies and adjacent sectors. Growth in this sector has been tremendous. Ultimately, valuations will eventually be tied to earnings, as the assets come online and produce real revenues.

In Infratil’s case, CDC is expected to generate EBITDAF of over $750 million NZD next financial year, a figure that is expected to grow to the billions in the years ahead. 

Ultimately, the fallout from NextDC’s revenue downgrade and development delay is still playing out. Investors, already on edge following the cancellation of the Firmus IPO, were quick to respond and send the share price lower, prompting a response from the board. 

------------

The difficulties experienced in the Australian data centre market present two distinct advantages for New Zealand.

Firstly, they present an opportunity for market leadership in New Zealand. 

New Zealand has two major data centres (so far) planned for this decade, at Makarewa and Stratford. These are to be partly owned, respectively, by Mercury Energy and Contact Energy.

The scale of these projects should not be underestimated. Between the development of the facilities and the subsequent increase in power supply, the two developments will create thousands of jobs across the construction, electrical and engineering sectors. 

Indeed, the ability for New Zealand to engineer and develop these projects will be challenging. Thousands of people descending upon Makarewa and Stratford will require forethought and planning, let alone the logistics of the actual construction.

The ongoing benefits will be meaningful, as tax revenue accrues and benefits flow through to the owners, including Contact and Mercury. Both companies feature heavily in New Zealand Kiwisaver accounts.

One wonders whether these assets could eventually see themselves as part of a public listing in the years ahead. 

There is a second advantage for New Zealand emerging from the issues facing NextDC. The struggles in Australia provide something of a blueprint on how the potential challenges and roadblocks impeding this sector can be addressed.

Community engagement remains critical, although this must remain in good faith. Unaffected parties airing grievances against the existence of AI, or those opposed to any form of change, will end up excluded from such engagement. 

Those within the community that are genuinely impacted should be consulted and concerns should be discussed. In the case of the opposition to NextDC’s M3 Melbourne site, opposition was raised over a number of issues, including a redesign of larger electrical poles to support an upgrade of the power lines. 

Concerns around water and electricity usage must also be addressed. Investing in water efficiency and new power supply looks to be a critical component to blunting these arguments and gaining broader societal support.

The struggles seen in NextDC’s data centre pipeline have ramifications for New Zealand. Investors have seen the benefits – both locally and nationally – of these data centres. Hopefully, lessons are learned from the recent experiences in Australia.

------------------

While investors fret over the valuations seen in these data centre companies, there may be a new data point coming to market soon. 

Anthropic, the company owning the Claude AI system, is planning to list on the Nasdaq, potentially as early as mid-November. Its valuation is expected to be close to $2 trillion USD, which would equate to around $3.5 trillion NZD, or $3,500,000,000,000.

For comparison, our Reserve Bank values New Zealand’s entire residential housing supply at about half that figure.

This is not the first “trillion-dollar IPO” this year. SpaceX launched its IPO in June of this year, valuing the company at $1.77 trillion. Today, it is valued at around $2 trillion. Those IPO investors have done well, outperforming the NASDAQ significantly. Scepticism has not yet been rewarded.

Like SpaceX, Anthropic’s value will be determined by the secondary market – that is, the price investors are willing to pay for the individual shares after listing. From there, Exchange Traded Funds will be able (and may be compelled) to take a position in the company, introducing exposure from around the globe.

A year ago, Anthropic raised money at a valuation of $183 billion. Clearly, significant growth has been seen since!

_ _ _ _ _ _ _ _ _ _

New Issues

Contact Energy is expected to issue a new subordinated capital bond on 2 November. 

The bonds have an initial term of around 5.5 years, with a possible interest rate of close to 6.00% per annum.

Investors who are interested in either of these potential bonds are welcome to contact us with their CSN and an indication of the amount they may wish to invest.

_ _ _ _ _ _ _ _ _ _

Travel

Our advisors will be in the following cities next month:

17 November – Christchurch - Chris Lee

18 November (am) – Christchurch – Chris Lee

18 November (pm) – Ashburton – Chris Lee

19 November – Timaru – Chris Lee

Investors who would like an appointment to see us are welcome to contact us.