Megaport (ASX:MP1) Surges 9% on A$35m AI Contract Win: Is the AI Comeback Finally Real?

Megaport (ASX:MP1) shares surged as much as 9% to an intraday high of A$9.73 on Monday morning, after the company landed a A$35.4 million compute and storage contract through its Latitude.sh subsidiary. Here is the paradox. This looks like clear validation of Megaport's artificial intelligence thesis, yet the stock is still down around 17% over the past year while the broader market has climbed. So does today's contract mark the long-awaited inflection point, or is it another false dawn for one of the ASX's most volatile AI plays?

Why the A$35m Latitude.sh Contract Validates Megaport's AI Compute Bet

The deal itself is substantial. It is a three-year contract worth US$25.1 million, adding roughly US$8.4 million in annualised recurring revenue. The customer is an unlisted, fast-growing US technology company in the developer tooling space, serving enterprise demand for agentic AI and backed by institutional capital.

What matters more is the context around it. This is not a one-off win. Compute annual recurring revenue from Latitude.sh, excluding this new deal, has already climbed 31% to US$58.7 million since December. Megaport's core Network ARR, including India, rose 23% to A$272 million as of 31 March. To support the new contract, Megaport will invest around A$17.2 million in additional CPU server hardware, with an expected payback of about two years. That spend fits neatly within its existing FY26 capex plan of A$90 million to A$100 million, signalling disciplined rather than reckless capital allocation.

In our view, this is the first concrete proof point that the Latitude.sh acquisition is doing what management said it would. Megaport's pivot from pure network interconnection toward compute infrastructure is now landing with real enterprise AI customers. The company is no longer just talking about AI. It is being paid for it.

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Why Megaport Still Trades Well Below Its Highs Despite Strong Fundamentals

The bear case explains the gap. Megaport shares are down around 17% over the past year while the broader market has risen. The reason comes down to one issue: profits.

Megaport is still spending heavily on growth, including the Latitude.sh business, acquired around five months ago and only recently integrated into the broader group's compute pipeline. In the current market, investors have been quick to punish technology stocks that are not yet posting bottom-line profits, even when revenue growth is strong.

Yet the picture is improving. Back in February, Megaport lifted its full-year revenue guidance and pointed to stronger margins ahead. Monday's contract adds another layer of stable, predictable income on top of that. With guidance raised, ARR accelerating, and AI compute demand now translating into signed contracts, the bear thesis is steadily weakening. The real question is not whether the business is improving, because it clearly is, but whether profitability arrives before investor patience runs out.

The Investor's Takeaway for MP1

Megaport is not a cheap stock, since profits are still some way off. The key catalysts from here are the full-year results in August, further compute contract wins, and the trajectory of EBITDA margins.

For growth investors comfortable with volatility, today's contract win materially de-risks the AI thesis, and the entry point looks more attractive than it has in twelve months. For more conservative investors, waiting for confirmation in August's earnings, particularly the direction of margins, is the more prudent path.

The comeback may well be real. But real does not mean linear, and Megaport remains a stock for investors who can tolerate a bumpy ride.

For deeper analysis of ASX technology and growth stocks, ASR's Investing Report covers high-conviction opportunities with detailed risk frameworks. New readers can also start with our free Top-3 Stocks & Market Outlook Report for current ASX ideas and broader market context.

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