NEXTDC is down 45%. WaveStone’s Charles Story says it's a lesson for AI investors

"Enthusiasm for a theme is not the same thing as an attractive investment at any price."

That's WaveStone Capital Director and Portfolio Manager Charles Story's take on NEXTDC (ASX: NXT), whose shares have fallen from above $10 at the end of September to just above $6 after a guidance downgrade tied to power supply delays.

For Story, the NEXTDC stock chart is the week’s most instructive data point. His concern is that sentiment around AI is softening as investors focus on the capital required and the constraints on power availability. “Those are not side issues,” he says.

It's a measured take from a manager who treats an investment view as “something to test, rather than something to defend at all costs”.

In this Q&A, Story explains why WaveStone has been adding to CSL as the business stabilises, while cautioning that “history is a reference point, not a promise”. He also covers why NAB has been trimmed but not exited, why HUB24’s rebound was his highlight of the week, and what he is watching in Magellan, and the more personal challenge of choosing where to live after relocating from Brisbane to Sydney.

What’s your most recent investment and why?

We have been adding to CSL (ASX: CSL). The attraction is the combination of signs of business stabilisation and a valuation that looks more interesting relative to its longer-term history. After a volatile period, my focus is on the stabilisation of the Vifor business, which has been under pressure from generic competitors ever since the company massively overpaid. 

Secondly, the core business Behring is now performing well and returning to solid top line growth. Valuation provides the third leg. Relative to CSL’s longer-term history, the price is more interesting to us. 

But history is a reference point, not a promise. The broader growth outlook needs to improve for it to continue to revert to longer term valuation levels.

Which investment did you add to your watchlist this week?

I am watching Magellan (ASX: MFG) closely. The medium-term opportunity interests me, but I want to separate that potential from the softer conditions in the near term. Our focus centres on capital constraints which have now alleviated, the equity ownership structure and the relationship between the funds management division and the markets-facing business. 

I am interested in whether that combination could support a different valuation over time. Management need to execute, however we believe they have attracted some of the smartest investment professionals and bankers in the country.

What is the most recent investment you have trimmed or sold and what drove this decision?

We have trimmed NAB (ASX: NAB) because the outlook for future earnings growth is appearing increasingly challenged. My concern is the pressure that the RBA’s ongoing inflation fight places on those customers, and what that could mean for the bank’s outlook and their exposure to small to medium businesses.

This was a reduction, not an exit. That distinction matters: the decision reflects a more cautious view of the operating environment rather than a conclusion that the entire investment case has disappeared. The question is how much exposure to retain when the outlook for an important customer group becomes tougher.

What’s your favourite chart or data point from this week?

NEXTDC’s (ASX: NXT) share price chart is my pick. It captures an important investment distinction: enthusiasm for a theme is not the same thing as an attractive investment at any price.

There has been considerable enthusiasm around artificial intelligence, but my concern is that sentiment is softening as investors focus on the capital required and the constraints on power availability. Those are not side issues. They affect how growth can be delivered and what it may cost to achieve it. The investment question is not just whether demand grows, but how that growth translates into value for shareholders.

WaveStone did not have exposure to NEXTDC. We hold a small overweight position in Goodman Group (ASX: GMG), which does have exposure to the Data Centre sector. We prefer their approach and certainty of underlying earnings across their broader business.

What was your weekly high – a standout market moment or highlight?

The rebound in HUB24 (ASX: HUB) was my weekly highlight. The key catalyst was HUB24's Q1 FY27 update: platform net inflows of $4.0 billion exceeded market expectations of about $3.8 billion, total funds under administration reached $168.6 billion, up 15% year on year. The business added 211 advisers and 45 new licensee agreements. 

Importantly, HUB24 also retained its market leading position for platform net inflows, providing reassurance its structural growth story remains intact. We view this as a very high-quality business that has some short-term cyclical headwinds.

What was your weekly low – a market disappointment or challenge from the week?

The position in Capricorn Metals (ASX: CMM) and the exposure to Gold-related companies was challenging for relative performance this week. The price movement was a reflection in the sell-off in gold rather than an operational issue at the company. Capricorn Metals remains one of the higher quality producers in the sector. 

We remain underweight gold, but have been selectively reducing that position. That reflects our longer-term view that the thesis of geopolitical uncertainty, central-bank purchases and concerns about fiscal sustainability and the US dollar remains supportive for exposure. 

We use gold as a hedge to other exposures in the long only portfolio. We are also able to use our expertise to identify the good operators from the lower quality ones. These present attractive pairs trades for our long/short strategy.

What first drew you to markets and what continues to keep you inspired today?

I love the competitive nature of our industry that really drives me and gets me up out of bed in the morning. I also really enjoy the constant learning and curiosity. I am often told I ask way too many questions, but it goes to my thirst for knowledge and always trying to uncover the next alpha opportunity.

What’s one piece of advice you’d give to new investors?

Stay humble. Do not assume you know more than everyone else. For me, that means treating an investment view as something to test, rather than something to defend at all costs.

How do you unwind when you’re not thinking about the market?

Family, exercise and reading are how I switch off. Relocating from Brisbane to Sydney with my family to join WaveStone Capital is adding another project: working out where to live and where the children will go to school. I am discovering in Sydney that North, South, East and West each have their own identity, and that everyone seems to have a view on which is best!

Rapid fire! 🔥

What is your favourite investing book?

One Up on Wall Street by Peter Lynch.

What is your favourite investing or finance/markets-related podcast?

Finding the Front. This is a podcast by Euroz Hartleys that interviews leaders, executives, and founders of prominent Australian companies.

What’s the first thing you read each morning?

What is your favourite restaurant?

Beccofino in Newfarm Brisbane.

What’s something people are surprised to learn about you?

I was my primary school’s chess champion, and I still really enjoy playing with my children.

Think there’s a better pick? Prove it. Share your rapid-fire book, podcast, and daily read in the comments.

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