Nextdc share price hits record high – does it have room to grow?

The Nextdc Ltd (ASX: NXT) share price hit an all-time high of $12.17 in early trade this morning. At the time of writing, Nextdc shares have fallen back to $12.

The data centre and cybersecurity provider’s share price has outperformed since it fell to lows of $6.58 in March this year, surging close to 60% from its bottom.

What’s driving the Nextdc share price to new heights today

Rather than this morning’s movement coming off the back of a key announcement, the Nextdc share price appears to have broadly benefitted from the unprecedented growth of the digital economy.

In particular, rising demand for data storage and security services this year has benefitted the company. The impact of COVID-19 on corporate Australia has been vast, including mandated stay at home orders and the majority of the workforce transitioning to working from home. These tailwinds have seen Nextdc flourish.

Part of the unique offering provided by Nextdc is the storage of company data infrastructure and IT services, coupled with its holistic protection by security operations centres. This ensures peace of mind for its clients to mitigate the risk of data breaches or cybersecurity breaches. Its client list includes international powerhouses Amazon Web Services (AWS), Alibaba, Google Cloud, and Microsoft Azure.

Cybersecurity continues to be an increasing area of positive market sentiment, highlighted by the approximate 25% increase in the BetaShares Global Cybersecurity ETF (ASX: HACK) share price since its lows in March this year. This macro trend for companies to invest in data protection will benefit Nextdc over the long-term in my view, as the incidence of corporations choosing to outsource their data and cybersecurity operations is likely to increase.

Should you invest?

Although Nextdc hasn’t provided a date for the release of its FY20 full-year results, many were impressed by the company’s first-half performance in February.

Despite being prior to COVID-19, the company nonetheless grew revenue by 8%, underlying earnings before interest, tax, depreciation and amortisation rose 21%, and its liquidity of $497 million will have helped cushion the pandemic’s blow.

I’m looking forward to seeing how Nextdc fared over the last 6 months, but over the long-term I expect the company to perform strongly. The shift to the digital economy and use of services in the ‘cloud’ is only going to be furthered over time, and the niche services offered by Nextdc are of critical importance to its clients.

The company is a watchlist item for me in the short-term, simply due to the Nextdc share price being at an all-time high, but if the price were to take a brief dive I’d be much more inclined to invest.

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Motley Fool contributor Toby Thomas has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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