HIGHLIGHTS

•       Macquarie rates MP1 Outperform with a target price of AUD$27.80, implying approximately 67% upside from the current price of AUD$16.61.

•       Latitude.sh (wholly owned by Megaport) secured three contracts with a combined TCV of USD$182.9M (AUD$254.0M), generating ARR of approximately USD$65.2M (AUD$90.6M).

•       Capital-expenditure/">Capital Expenditure of USD$101.0M (AUD$140.3M) required, with a ~2-year payback period; funded via existing cash and a newly upsized AUD$150M Debt Facility.

 

Megaport Limited (ASX:MP1) was trading at AUD$16.61 as of 1 June 2026, a level that Macquarie considers significantly undervalued relative to its Outperform rating and AUD$27.80 price target. That gap — roughly 67% implied upside — reflects the broker's conviction that the market has yet to fully price in the transformational impact of recent contract wins and the evolving role Megaport is playing across the AI infrastructure ecosystem. The share price has faced pressure in an environment where growth-oriented technology names remain under scrutiny, but Macquarie's thesis rests on the premise that recurring, committed Revenue streams now underpin a more defensible Earnings base than investors have historically attributed to the Business.

The Latitude.sh Contracts: What the Numbers Say

On 14 May 2026, Megaport announced that its Wholly Owned Subsidiary, Latitude.sh, had entered into three binding contracts for GPU, CPU, network, and storage infrastructure services across two US-based customers. The combined total contract value stands at approximately USD$182.9M (AUD$254.0M), with annualised Recurring Revenue of approximately USD$65.2M (AUD$90.6M). Two of the three contracts carry 36-month initial terms, with the third structured over 24 months — accounting for roughly 90% of the TCV. These are fixed-term, committed agreements, meaning revenue accrues irrespective of the customers' actual usage levels, providing a degree of Cash Flow certainty that is relatively uncommon in infrastructure-as-a-service agreements at this scale.

Both counterparties are US-headquartered technology companies running AI applications and inference workloads, backed by institutional shareholders. Notably, one of the two was already an existing Megaport customer, which management cited as validation of the Group's cross-sell and upsell capabilities following the Latitude.sh Acquisition. While customer identities have not been disclosed for competitive reasons, Megaport confirmed the disclosure contains all material information relevant to assessing the price impact on its securities.

Capital Deployment and Payback Mechanics

The contracts require approximately USD$101.0M (AUD$140.3M) in incremental capital expenditure, primarily directed toward high-performance NVIDIA GPU and associated compute, network, and storage hardware. Megaport has already placed orders for this equipment, with delivery anticipated in late FY26 or early FY27. Deployment will proceed on a phased basis, with the full ARR run-rate contribution expected by the end of H1 FY27. The approximate two-year payback period — measured as the time for cumulative EBITDA to exceed initial compute capex — positions this Investment favourably against the contract durations and suggests meaningful cash generation beyond the payback inflection point.

Funding will be drawn from a combination of existing cash reserves and capacity under a newly upsized AUD$150M committed debt facility from a leading global financial institution. Pro-forma Liquidity, inclusive of these contracts and a previously announced AUD$35.4M compute contract from April 2026, would have been approximately AUD$199.1M as at 31 December 2025. With these investments, Megaport also satisfies the committed USD$86.0M capex undertaking agreed as part of the Latitude.sh acquisition terms for CY26 and CY27.

Strategic Positioning: Beyond Connectivity

Megaport's historical identity as a software-defined networking and connectivity platform — spanning more than 1,100 data centre locations globally — is being extended through Latitude.sh into a vertically integrated compute and storage offering. CEO Michael Reid described the combination as creating a 'global automated infrastructure platform,' capable of serving both large enterprises and next-generation hyperscalers that require distributed compute at scale, close to their end markets. The timing aligns with a structural shift across the AI industry, as workloads migrate from foundation model Training toward inference and edge deployment — a transition that is inherently latency-sensitive and therefore favours Megaport's distributed model.

The company confirmed it is actively assessing a growing pipeline of comparable opportunities, applying disciplined criteria around counterparty Credit quality, committed terms, payback metrics, and overall returns. The April 2026 announcement of a separate AUD$35.4M three-year compute contract was the first public signal of this approach; the May announcement represented a materially larger step in the same direction.

Guidance and Near-Term Financial Trajectory

Megaport reaffirmed FY26 Revenue and EBITDA guidance as provided at its H1 FY26 results in February 2026. FY26 Group Capex guidance of AUD$90M–$100M remains in place, excluding the new customer contracts. However, management flagged that if contracted hardware is delivered before 30 June 2026, FY26 capex could increase by up to AUD$140.3M. Full details on both network and compute financial performance are expected to be disclosed at the full year results in August 2026. For investors tracking the incremental ARR build, the ramp from current deployment to full run-rate is the primary near-term earnings catalyst.

Conclusion

Megaport has executed materially on its stated ambition to convert Latitude.sh into a revenue-generating platform at scale. The AUD$254M TCV announcement, combined with the prior April contract, demonstrates that the market for committed AI compute infrastructure is real, and that Megaport's global footprint positions it as a credible provider to well-capitalised US technology companies. Macquarie's AUD$27.80 Outperform target reflects a significant re-rating thesis contingent on the ARR build progressing as guided through FY27, the payback timeline on capex materialising, and continued pipeline conversion. The share price at AUD$16.61 embeds a material discount to that scenario, and the gap will likely narrow or widen depending on execution visibility delivered at the August full-year results.