Is the NEXTDC (ASX:NXT) share price in the buy zone after its update?

Is this data centre operator a share to buy?

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The NEXTDC Ltd (ASX: NXT) share price will be one to watch this morning.

This follows the release of an announcement by the data centre operator after the market close on Wednesday.

What did NEXTDC announce?

The NEXTDC share price could be given a boost today by a positive update on the development of its Melbourne (M3) data centre.

According to the release, the company has been successful in obtaining planning consent for the new centre and has proceeded with construction. Furthermore, the company has acquired an additional 40,000sqm of adjoining land for $24 million, lifting the overall size of the M3 site to approximately 100,000sqm.

The release notes that, subject to planning consent, the site will be developed into a hyperscale campus which is expected to accommodate a data centre capable of approximately 150MW of capacity. This is in addition to housing its customers' mission critical operation centres, administrative offices, and collaboration spaces.

Management advised that M3 will provide data centre services to Enterprise and Government customers, as well as hyperscale cloud providers in a new Availability Zone within the Melbourne market.

The ground works and base building construction of the initial 13.5MW of capacity is progressing, with practical completion planned for the first half of FY 2023.

NEXTDC's Chief Executive Officer and Managing Director, Craig Scroggie, commented: "The upgraded development of this new hyperscale technology campus in Melbourne is driven by ongoing customer demand for premium quality data centre infrastructure. NEXTDC looks forward to being able to offer our customers multiple availability zone solutions across our existing M1 Port Melbourne, M2 Tullamarine, as well as this new M3 hyperscale campus in West Footscray."

Is the NEXTDC share price in the buy zone?

The team at Goldman Sachs have looked over the announcement and remain very positive on the NEXTDC share price.

This morning the broker retained its conviction buy rating and $14.80 price target. Based on the current NEXTDC share price, this implies potential upside of over 13%.

Goldman said: "Overall we are pleased with this update, given the marginally faster completion of the M3 facility, along with the increased overall size. We also believe this facility is now much more comparable and complementary to the recently announced S4 hyperscale campus (300MW), so is a more logical and appealing inclusion within any Joint Venture structure (which we expect)."

"We continue to believe that these Hyperscale campuses are a relatively low risk way for NXT to accelerate its growth profile, given they are delivering incremental growth (i.e. new availability zone), but within existing markets. The use of a JV structure will also allow NXT to maintain its attractive return profile, along with significant funding flexibility," it added.

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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