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NextDC’s share plunge: a pinhole in the AI bubble? · What the Flux

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  Speaker 1: This is What The Flux Unpacked, where we go deeper
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  Speaker 1: into one of the juiciest business stories of the week.
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  Speaker 1: I'm Brett.
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  Speaker 2: And I'm Larissa, and today we're unpacking Australia's largest data
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  Speaker 2: centre operator and what caused its shares to fall by 40%
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  Speaker 2: in just one day this week. But first, here are
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  Speaker 2: the top three stories for Friday the 23rd of October.
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  Speaker 2: For our first story, house prices in Australia have fallen
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  Speaker 2: in every capital city for the first time in 15 years.
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  Speaker 2: That's according to Domain's September house price report. Experts say
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  Speaker 2: rising interest rates and low confidence are driving the price drop.
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  Speaker 2: For our second story, Met has been hit with a
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  Speaker 2: class action lawsuit in the Australian Federal Court. The first
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  Speaker 2: of its kind legal action, filed earlier this month, claims
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  Speaker 2: Facebook and Instagram are addictive and expose children and teens
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  Speaker 2: to harmful content. For our third story, Tesla and SpaceX,
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  Speaker 2: Elon Musk's two biggest companies, could be merged into one.
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  Speaker 2: Musk confirmed he's considering a merger, but it would require
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  Speaker 2: shareholder support. Brett, when was the last time you streamed
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  Speaker 2: a TV.
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  Speaker 1: Show or movie? I'm going to say two nights ago.
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  Speaker 2: What were you watching?
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  Speaker 1: Kardashians, obviously.
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  Speaker 2: Obviously, great watch. Did you think about how that video
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  Speaker 2: got to your screen?
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  Speaker 1: Not so much.
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  Speaker 2: Okay, well basically that video file sits in a physical
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  Speaker 2: building a bit like a massive tech library waiting for
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  Speaker 2: you to hit play before it can appear on your screen.
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  Speaker 1: Sounds like a pretty powerful library.
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  Speaker 2: It is, but storing the latest episode of the Kardashians
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  Speaker 2: barely scratches the surface of just how powerful those libraries are.
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  Speaker 1: Can't believe I've really let that one go, but tell
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  Speaker 1: me more.
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  Speaker 2: Okay, so these digital libraries are called data centers. You've
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  Speaker 2: probably heard them in the news a lot. They store
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  Speaker 2: the information used every time you tap your card to
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  Speaker 2: pay for something, save a photo on the cloud, or
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  Speaker 2: ask Claude a question.
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  Speaker 1: I think we've done all of those things. Data centres
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  Speaker 1: have been all the rage this year. So why are
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  Speaker 1: we talking about them today?
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  Speaker 2: Well, Brett, one of Australia's largest data centre operators, NextDC,
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  Speaker 2: saw its shares plummet 40% in a single day this week.
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  Speaker 1: That's huge. A data centre operator at the centre of
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  Speaker 1: some pretty negative headlines. How did we get here?
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  Speaker 2: Well, Brett, do you know much about NextDC and what
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  Speaker 2: they do?
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  Speaker 1: I know a little bit, but not as much as
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  Speaker 1: you do. Okay.
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  Speaker 2: Well, they're a major data center operator here in Australia.
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  Speaker 2: They've been around for about 15 years and operate 17
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  Speaker 2: data centers on our soil. Plus they have nine more
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  Speaker 2: in the works.
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  Speaker 1: And data centers are basically massive warehouses with no windows,
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  Speaker 1: packed full of servers and lots of air conditioners to
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  Speaker 1: cool them down.
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  Speaker 2: Yeah. And a data center operator like NextDC is kind
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  Speaker 2: of like a landlord of the internet with data centers
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  Speaker 2: being the hottest piece of real estate to tech companies
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  Speaker 2: right now. Because AI has popped off obviously this year
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  Speaker 2: and we know AI needs data centers to work.
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  Speaker 1: So NextDC has been trying to build as many of
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  Speaker 1: these data centers as it can. Is that right?
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  Speaker 2: Yeah, but they're not easy to build these data centres
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  Speaker 2: and they use a lot of electricity.
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  Speaker 1: How much are we talking?
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  Speaker 2: Okay, so to put it into real life context, Next
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  Speaker 2: DC built a data centre in Melbourne's West Footscray that
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  Speaker 2: requires power poles carrying 66,000 volts of electricity to operate
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  Speaker 2: the data centre.
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  Speaker 1: That is what seems to be a huge... Huge amount.
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  Speaker 2: Yeah.
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  Speaker 1: Shocking amount even.
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  Speaker 2: Shocking amount if you want to put the pun in there.
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  Speaker 2: It's actually around 160 times the voltage of previous.
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  Speaker 1: Polls in place. And does this Melbourne-based data centre have
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  Speaker 1: anything to do with Next DC's shares plummeting this week?
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  Speaker 1: It does.
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  Speaker 2: As I mentioned earlier, Next DC's shares dropped around 40%
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  Speaker 2: on Wednesday to its lowest in almost nine years. Hmm.
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  Speaker 2: And that came after they told investors that net revenue
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  Speaker 2: for this financial year would be slashed by a third.
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  Speaker 1: Spooky. And clearly investors did not love this news. Not
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  Speaker 1: at all. So what caused such a big revenue downgrade
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  Speaker 1: for NextDC?
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  Speaker 2: Well, that Melbourne-based data centre that we were speaking about
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  Speaker 2: is meant to be a huge source of revenue for NextDC.
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  Speaker 1: Right. And that's now been delayed well into 2027 at least.
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  Speaker 2: Yeah, and the reason for that delay is that the
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  Speaker 2: company supplying electricity to Next DC's centre in West Footscray
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  Speaker 2: has been stopped from installing PowerPOP.
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  Speaker 1: Stop, that's interesting. Who actually enforced this stop?
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  Speaker 2: Very angry residents who actually blocked construction crews from installing
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  Speaker 2: power poles by leaving cars and bins in their way.
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  Speaker 1: And I'm no expert, but a data centre with no
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  Speaker 1: electricity is basically just a big windowless warehouse.
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  Speaker 2: To sum it up, yeah, not much use to Next
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  Speaker 2: DC or its big tech customers.
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  Speaker 1: Is this the first time something like this has happened
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  Speaker 1: to a data centre here in Australia?
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  Speaker 2: No, these blocks are actually happening more and more. A
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  Speaker 2: data centre being built in Sydney by Goodman Group was
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  Speaker 2: stopped last month after public opposition. Firmus, which has been
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  Speaker 2: in the news a lot, has been battling with locals
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  Speaker 2: over projects in Tasmania.
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  Speaker 1: Sound like a big power struggle going on between data
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  Speaker 1: centres and locals. What's the key learning in all of this?
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  Speaker 2: The thing that makes data centres so valuable could ultimately
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  Speaker 2: be the thing that trips them up.
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  Speaker 1: Okay, and what makes them so valuable?
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  Speaker 2: Well, I mentioned earlier that data centres aren't easy to
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  Speaker 2: build or to operate. You need land, a lot of power,
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  Speaker 2: the tech of approval from the communities you're building in.
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  Speaker 1: Or at least for them not to block you out
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  Speaker 1: with their bins.
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  Speaker 2: No, and we know demand for data centres is booming.
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  Speaker 1: Yep, the hyperscalers like Alphabet, Microsoft, Meta and Amazon are
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  Speaker 1: expected to spend around 700 billion US dollars just this
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  Speaker 1: year on AI infrastructure like data centres.
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  Speaker 2: Yeah, so when a company can build those data centers,
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  Speaker 2: and it's one of the very few who can, the
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  Speaker 2: market values it very highly.
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  Speaker 1: Until it can't deliver the thing it promised.
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  Speaker 2: And it can't deliver that without permission or social license
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  Speaker 2: from the communities where it's building.
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  Speaker 1: So for NextDC and companies like them, investor confidence has
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  Speaker 1: to come with community buy-in.
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  Speaker 2: And right now, both are kind of souring. Earlier this month,
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  Speaker 2: AI data center company Firmus pulled its plans to list
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  Speaker 2: on the ASX after failing to gather enough investor interest.
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  Speaker 1: And in the US, local pushback blocked or delayed 45
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  Speaker 1: data center projects worth around 68 billion US dollars. And
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  Speaker 1: that was just in three months this year.
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  Speaker 2: Yeah. So while the AI data center industry has been booming,
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  Speaker 2: the cracks are starting to show.
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  Speaker 1: So to wrap up what we've been chatting about, Larissa,
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  Speaker 1: data center demand is definitely there. It's definitely growing. But
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  Speaker 1: the problem isn't necessarily anything about hype. It's actually getting
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  Speaker 1: these data centers up and running.
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  Speaker 2: Yeah. So the fight for social license might be the
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  Speaker 2: pin that pops a potential AI bubble.
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  Speaker 1: Or at least the thing that pokes a bit of
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  Speaker 1: a hole that lets some of the air out.
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  Speaker 2: Thanks so much for listening to What The Flux Unpacked.
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  Speaker 2: We'll be back in your ears on Wednesday with all
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  Speaker 2: the business news you need to know.
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  Speaker 1: Thanks for listening. Have a great weekend and see you
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  Speaker 1: on Wednesday.