Megaport Limited

The Business

Megaport operates two businesses under one roof. The original network-as-a-service (NaaS) division lets enterprises provision private connections between data centres, clouds and offices in under a minute, replacing physical circuits that once took weeks to install. This business generated $268 million of FY26 revenue at roughly 75% gross margins. Layered on top is a new AI compute platform, built through the Latitude.sh acquisition, renting GPU capacity to enterprises running AI inference workloads. Compute contributed just $44 million in FY26 but carries $1.3 billion of contracted future revenue already signed.

Recent Performance

Megaport's FY26 result showed network revenue growing 18%, extending a multi-year track record of guidance met or beaten. The bigger story was the compute pivot: a $1 billion equity raise (33% share dilution) and an $825 million debt facility now fund $1.16 billion of committed capital expenditure in FY27 alone. The market has re-rated the stock on the AI infrastructure narrative, pricing in compute success well ahead of any margin disclosure.

Outlook

Total revenue is expected to roughly double in FY27 and continue growing strongly into FY28, driven almost entirely by compute deployment against that $1.3 billion contracted base. Group EBITDA margin (earnings before interest, tax, depreciation and amortisation, as a percentage of revenue) should expand meaningfully from current levels as fixed costs are spread over a larger revenue base. But gross margin is expected to compress as the lower-margin compute business becomes roughly half of group revenue, and free cash flow is likely to stay negative for at least the next two years before turning positive.

Key Risks

Compute gross margin remains entirely undisclosed. If it lands materially below the levels needed to cover GPU depreciation, the investment would fail to earn its cost of capital and group profitability would come under sustained pressure. AI infrastructure demand could also prove cyclical rather than structural, echoing prior data centre build-out cycles that ended in overcapacity and margin compression; GPU hardware pricing already falls 20-30% annually, which pressures the economics of existing contracts over time. Separately, management is now integrating an acquisition, executing a $1.3 billion capital programme, and weighing a further US acquisition, all simultaneously and early in the current leadership team's tenure. Any slippage in a single workstream compounds given how much of FY27 spending is already locked in.

What to Watch

The thesis-defining event is Megaport's first-half FY27 result, which will disclose compute segment gross margin for the first time. Until that number is known, the entire compute valuation case remains a matter of assumption rather than evidence.

• February 2027 H1 FY27 compute margin disclosure — resolves whether compute economics support the current price.
• August 2027 FY27 full-year result — tests whether management's guided group EBITDA margin range was achievable.

Company Description

Megaport runs two distinct businesses. The network division (86% of FY26 revenue) provides software-defined connectivity: customers log into a portal and provision private links between data centres, cloud providers (AWS, Azure, Google Cloud) and offices in under a minute, rather than waiting weeks for a physical circuit. This runs on Megaport's own infrastructure across 1,138 data centres in 31 countries. The compute division (14% of FY26 revenue, built via the Latitude.sh acquisition) rents GPU capacity for AI inference workloads. Compute is contracted to reach roughly 51% of group revenue by FY27, a rapid mix shift from a standing start.

Where the Growth Is

AI compute is the growth engine. It contributed just 14% of FY26 revenue but is contracted to reach approximately 51% of revenue in FY27 on $1.3 billion of signed total contract value. Compute revenue is expected to scale sharply over the coming five years, compounding at a much faster rate than the mature network business, which continues to grow at a high single-digit pace. The revenue trajectory is largely locked in through signed contracts; what remains unverified is whether that revenue converts into acceptable returns.

Competitive Position

The network business has a durable edge: a decade of carrier-neutral data centre relationships and interconnection agreements that would take years for a competitor to replicate, reinforced by 114% net revenue retention that shows customers deepen their usage over time. That advantage should widen over the next five to seven years. The compute business is different. GPU infrastructure is more commoditised, prices for GPU capacity fall 20-30% annually, and hyperscalers (AWS, Azure, Google Cloud) can build competing network-plus-compute bundles. The compute moat is likely to hold for only two to three years without further differentiation, which is why the combined network-plus-compute offering, not compute alone, is central to whether Megaport defends its position.

Management & Capital Discipline

Management has a credible track record scaling the network business, with guidance met or beaten across recent years and network metrics that are independently verifiable. Capital allocation has shifted dramatically: a $1 billion equity raise, an $825 million debt facility, and $1.3 billion of contracted capital expenditure, all directed at a business the current team has not previously run at this scale. The honest observation is that management is transparent and credible on network metrics but has made claims about compute investment returns that cannot yet be checked against any disclosed number.

Financial Position

Megaport holds $744 million in cash following its capital raise, against an $825 million debt facility that remains largely undrawn but will be tapped to fund FY27's capital programme. Net debt to EBITDA is expected to rise toward 2.0 times as the facility is drawn down. The balance sheet can fund the committed capex programme without further equity raising, but there is limited room for cost overruns or delays given how much of FY27's spending is already committed.