ASX tech stock Megaport Ltd (ASX: MP1) is blasting higher on Thursday.
During afternoon trade, the Megaport share price is surging 35% to $13.31 after the company unveiled a massive trio of contract wins tied to the booming artificial intelligence (AI) sector.
The rally continues an extraordinary run for investors. The $2 billion ASX tech stock is now up 88% over the past month and 7% over the past 12 months, outperforming the benchmark S&P/ASX 200 Index (ASX: XJO), which has climbed roughly 4% over the same period.
So, what just sent Megaport shares into overdrive?
Major contracts, recurring revenue
Megaport revealed it has secured three major customer contracts worth a combined US$182.9 million, or approximately A$254 million in total contract value.
Even more importantly, the ASX tech stock expects the deals to generate around US$65.2 million (A$90.6 million) in annual recurring revenue (ARR).
That instantly grabbed investor attention. Recurring revenue is highly prized in the tech sector because it creates predictable cash flow and stronger long-term earnings visibility. In Megaport’s case, the business managed to lock in the contracts for fixed periods. Two of them are running for 36 months, and another is spanning 24 months.
The company also highlighted that the revenue is contracted regardless of actual customer usage, further strengthening the reliability of future earnings.
AI appeal
Investors appear especially excited because the contracts are tied directly to AI infrastructure demand.
Megaport said the agreements are with two US-based technology providers powering AI applications. One of the customers is already an existing client, suggesting the company is successfully upselling larger services across its global platform. That could be a very bullish sign for future growth opportunities.
To support the contracts, Megaport plans to invest heavily in high-performance hardware, including Nvidia Corp (NASDAQ: NVDA) GPUs, networking equipment, compute infrastructure, and storage. The ASX tech stock expects to spend roughly US$101 million (A$140.3 million) in capital expenditure to deliver the projects.
Backed by existing cash reserves
Importantly, management of the ASX tech stock said existing cash reserves alongside a newly upsized AUD$150 million debt facility will fund the investment. That eased concerns about the need for a potentially dilutive capital raising.
Megaport also noted the hardware won’t simply become obsolete when the contracts expire. Instead, the company expects to redeploy the infrastructure into the company’s Latitude.sh platform. This potentially will generate additional long-term revenue streams beyond the initial customer agreements.
Deployment of the equipment is scheduled to begin during the first half of FY27.
What else should investors know?
Despite the blockbuster announcement, the ASX tech stock reaffirmed its FY26 revenue and EBITDA guidance for the expanded group. This is excluding the impact of the new contracts.
However, the company warned that the additional investment could lift FY26 capital expenditure by as much as A$140.3 million. It said that this will depend on equipment delivery timing.
Management plans to provide more details on the financial impact and broader outlook at its full-year results in August 2026.
For now, though, investors appear focused on one thing: Megaport has just landed major AI-linked contracts with locked-in recurring revenue. And the market clearly likes what it sees.
The post Why is this ASX tech stock rocketing 35% today? appeared first on The Motley Fool Australia.
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Motley Fool contributor Marc Van Dinther has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport and Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.