Shares in this data centre company are down 40% as investors lose faith in the AI story
While AI hype is strong, the business models are coming under increasing scrutiny.
Shares in Australian data centre firm NextDC have plummeted by 40% as investors lose confidence in the artificial intelligence (AI) narrative. This decline follows the company's announcement that delays at its Melbourne data centre would hinder revenue growth. Jemena, the local electricity distributor, halted construction of power poles required for NextDC's operations due to community concerns over the impact on residential neighbourhoods.
Similarly, UK-based data centre developer Nscale is struggling to attract buyers for a Wall Street stock market listing. CoreWeave, a company boasting the world's most powerful AI supercomputer, saw its shares drop by 15% due to financial concerns. These market reactions highlight the mounting doubts surrounding AI businesses despite strong hype.
The industry has witnessed massive investments, with forecasts predicting a US$10 trillion (A$14.25 trillion) pipeline by 2032, primarily funded internally by firms or via direct investor funding. However, higher borrowing costs, increased construction expenses, and the need to attract higher returns are complicating matters. AI giants like OpenAI and Anthropic may need to boost revenues by 80% annually for the next six years to satisfy investor expectations.
Meanwhile, the rapid pace of AI hardware development, with each new generation requiring upgrades, poses a significant challenge. Nvidia, a leading chip manufacturer, stands out as one of the few AI firms currently profitable, but worries about circular financing and over-investment loom. As the demand for data centre infrastructure grows, so do concerns about local community acceptance, noise, visual impact, localised heating, and environmental effects.
The increasing energy consumption and potential strain on local utilities cannot be overlooked, as data centre operations could consume up to 25% of Sydney's daily water demand in New South Wales within a decade. As investors become more cautious and communities resist hosting these centres, the risk of a broader market sell-off could intensify.
To restore investor confidence, AI investments must prioritize efficiency in costs, energy demands, and spatial requirements.
Written by urgent.news from The Conversation AU's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
