Nuix makes software that helps governments, law enforcement agencies, and corporations sift through massive volumes of data for investigations, litigation, and compliance. At A$1.57 versus our fair value of A$2.24, the stock is undervalued by 43%. The key driver is the Neo platform migration — early evidence shows it reprices existing customers 30–50% higher, but only 20% of revenue has migrated so far, and an unresolved class action trial in August 2026 keeps a lid on the share price.

The best fit for Nuix is the thematic investor who sees the convergence of regulatory enforcement, AI data governance, and digital investigation as a durable structural trend. The upside is real and the valuation discount is wide — but patience is required, and the litigation overhang means this is not a set-and-forget position.

Nuix sells subscription software to government agencies, law enforcement, and corporate legal teams who need to process and investigate large volumes of unstructured data — emails, documents, device images, and increasingly AI-generated content. Revenue is almost entirely recurring, billed annually against contracted customer value (ACV), which provides forward visibility that statutory revenue figures can obscure.

The most recent half-year results showed genuine momentum. Underlying free cash flow reached A$28m, up from A$7m a year earlier. ACV grew 8.4% to A$234m. And the new Neo platform — which replaces the legacy product with a cloud-native architecture — is attracting new customers at contract sizes two to three times larger than the old product. The problem is that net dollar retention, the metric that captures whether existing customers are spending more or less over time, has fallen for three consecutive periods, sitting at 101%. That means growth is almost entirely driven by new logos rather than expanding the existing base — a less efficient and less predictable growth model.

The investment case rests on two sequential catalysts: litigation resolution by mid-2026, which removes the primary uncertainty discount, followed by NDR recovery as Neo migration reprices the installed base. If both happen on schedule, the stock rerate is significant. If neither does, the bear case at A$1.35 is close to the current price. At A$1.57 versus our fair value of A$2.24, the stock is 43% undervalued.

What happened?

The first half of FY26 was a meaningful recovery from the FY25 trough. ACV grew 8.4%, the EBITDA margin improved to 21.8%, and underlying free cash flow surged to A$28m. European government clients led the growth, with law enforcement ACV up 19%. New customer ACV jumped 272% — reflecting the pricing power of the Neo platform with fresh buyers who have no legacy contract anchor.

What's next?

The Neo Migration Program launches at scale in April 2026. This is the critical execution test. Each migrated customer represents a 30–50% ACV uplift opportunity, and with 80% of the installed base still on the legacy platform, the runway is substantial. Success here would reverse the NDR decline that has been the market's primary concern.

The Class Action trial is scheduled for August 2026. A favourable outcome or settlement removes the largest single uncertainty hanging over the stock. The ASIC judgment is expected even sooner and will set the tone. The company holds A$57.8m in net cash with no formal debt, which means even a A$65m adverse litigation outcome would be painful but survivable. A permanent CEO appointment — the position has been interim since late 2024 — would add further credibility to the Neo execution narrative.

The single biggest risk is that net dollar retention turns out to be structurally impaired rather than cyclically depressed. Three consecutive periods of decline — from 112.9% to 101% — could mean government and corporate clients are quietly trimming Nuix's footprint in favour of adjacent tools from Microsoft, OpenText, or Relativity as AI features blur the product boundaries. If NDR settles permanently around 101%, ACV growth becomes entirely dependent on new logo acquisition, which is slower, costlier, and less predictable. In that scenario, the margin expansion thesis collapses alongside the revenue growth story, and fair value falls toward the bear case of A$1.35 — barely below the current price. The quarterly NDR figure is the single data point that will either validate or break this thesis. Any reading below 98% for two consecutive periods would be cause to reassess the position entirely.