WEBULL
WebtradeDownload

How AI Data Centre Plans At Drax Group (LSE:DRX) Have Changed Its Investment Story

Simply Wall St · 1d ago
  • Drax Group confirmed a multi phase partnership with Brookfield and Radiant to plan, build and run an AI focused data centre at Drax Power Station, targeting more than 1 GW of capacity and an estimated potential investment above £20b across phases.
  • The plan to use Drax Power Station’s 4 GW grid access, 2.6 GW of dispatchable generation and a Contract for Difference flexibility option for up to 500 MW links AI compute demand directly to the group’s core power infrastructure and contract structure.
  • We will now look at how this AI focused data centre plan at Drax Power Station could reshape Drax Group's investment narrative.

Scan other AI infrastructure plays moving early on power-secured capacity by reviewing the hand-picked 53 AI infrastructure stocks alongside Drax Group's latest move into data centre demand.

Drax Group Investment Narrative Recap

To be a shareholder in Drax Group, you need to believe the business can turn its contracted biomass, FlexGen and battery assets into steadier earnings than its recent 0.4% net margin suggests, while revenue is expected to decline over the next three years in the analyst consensus Narrative on Simply Wall St. The AI data centre plan leans into that view by tying future compute demand to existing power infrastructure and CfD protections, although most of the impact sits beyond the near term.

In the short term, the main catalyst remains disciplined execution of the U.K. build out in FlexGen, batteries and the Bluefield portfolio, while keeping debt and funding costs under control. The data centre project adds a large, long dated option but also reinforces a key risk flagged by analysts that big capital commitments, on top of acquisitions, could pressure leverage or limit cash returns if timelines slip or tenants are slow to sign.

The recent Contract for Difference for Drax Power Station is the announcement that most clearly links to this AI data centre news. That CfD covers about 6 TWh of biomass output per year through 2031 and includes an option, subject to Government and Low Carbon Contracts Company approvals, to allocate up to 500 MW to serve a data centre. This link matters because it connects high load factor compute demand with contracted low carbon power, rather than leaving Drax fully exposed to merchant prices.

For you as an investor, the CfD plus the data centre agreement frame both a potential new earnings stream and a test of execution. Progress depends on planning and regulatory approvals, securing an anchor tenant and agreeing long term power arrangements without stretching the balance sheet beyond the roughly 2x EBITDA leverage that management has cited around past deals. If these building blocks fall into place, the AI project could sit alongside Bluefield renewables, BESS and OCGTs as part of the same cluster of catalysts the analyst consensus Narrative on Simply Wall St focuses on, though with meaningful delivery and concentration risk attached.

Drax Group's narrative projects £3.9b revenue and £260.1m earnings by 2029. This assumes revenue declining at 9.3% per year and an earnings increase of about £241m from £19.0m today.

Uncover why Drax Group's fair value indicates a 7% potential upside to its current price, which could narrow quickly.

LSE:DRX 1-Year Stock Price Chart
LSE:DRX 1-Year Stock Price Chart

Exploring Other Perspectives

One big swing factor the more pessimistic analysts focus on is project delivery risk. Before this AI data centre news, the lowest forecasts for Drax Group assumed revenue of about £2.4b and earnings near £239.5m by 2029, and treated that as already “paid for.” Those views could shift if you think this agreement really changes the pipeline, so it is worth comparing both narratives yourself.

Explore 2 other Drax Group fair value estimates, including one that suggests it could be worth just £9.25.

Reach Your Own Conclusion

Disagree with existing narratives? Extraordinary investment returns rarely come from following the herd, so consider your own analysis and judgment.

Looking for more investment ideas beyond Drax Group?

If you want to put Drax Group in context, compare it with other companies that match the kind of risk, income or balance sheet profile you prefer. The Simply Wall St Screener can help you build a wider watchlist, instead of focusing on a single stock in isolation.