Technicals for NXT are strong. 103% increase in daily volumes with a 4% advance. I believe the increase could be due to several factors.
Second wave of covid - in the US and globally Covid cases are accelerating with the easing of restrictions. Stocks like NXT will benefit with increased demand for online services if restrictions were to tighten.
Growth vs Value - recently there has been a shift to value stocks away from growth stocks. This has meant larger holders will sell down on NXT to by value stocks. I believe the stock market more broadly is overpriced. The global stimulus is masking the underlying issues. The US Fed and other reputable commentators are saying as much. The surge in NXT share price is reflective of a move back into growth stocks. The global bond yields have plummeted over the last 12 months and people are going to be chasing growth. NXT will do well out of this in the medium to longer term. Cheaper credit will provider shareholders with higher margins as NXT is a capital intensive business. Lower yields will continue to increase the PE ratios of investments.
Cyber Security - Scomo announced on Friday morning about persistent cyber attacks. I think this is good for NXT and the likes of MAQ. Macquarie telecom only a couple of days ago indicated increased demand for the secure government datacentre and security services. My thinking is a customer is going to be safer in a public cloud environment such as Azure, GoogleCloud or AWS than their own datacentre. NXT doesnt have as much federal government exposure like MAQ but will benefit from increased public cloud adoption.
Earnings - I think the upcoming earnings is going to be really good. i have posted about this previously. The delays in the S2 build has banked up the billings for the 16MW sold in S2. COVID would have accelerated the time to billings significantly. Also the M2 contracts will be billing fairly soon.
Takeover/Sovereign Wealth Funding - Morgans in their previous note indicated a takeover around June would make sense due to leases expiring, borrowings expiring, etc. Also they have P2 built, S2 built and M2 sold with options to cover the full capacity. A takeover make sense now. I have been watching the USD:AUD FX very closing as a strong USD could make buying out NXT much cheaper. The drop in the AUD is a temporary thing and will rebound. Alternatively instead of a takeover they get very cheap and patient capital from a sovereign wealth fund. This announcement would be very big as it would allow NXT to compete better with the likes of AirTrunk for hyperscalers.
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