NIMBY strikes again: NextDC crashes 40% as investors confront an overlooked AI risk

For all the excitement surrounding artificial intelligence, investors may have overlooked one rather inconvenient obstacle to the AI revolution: the neighbours.

NextDC (ASX: NXT) shares plunged ~40% on Wednesday, sinking towards their lowest levels in a decade, after the data centre operator slashed its earnings guidance following delays to electricity infrastructure at its flagship M3 facility in Melbourne.

The culprit? Community opposition to the installation of enormous electricity poles in Melbourne's western suburbs.

It's a classic case of NIMBYism (Not In My Backyard), and according to Marcus Today Senior Market Analyst, Henry Jennings, it's a risk that AI investors may have seriously underestimated.

"We have seen serious pushback in the US with data centres. NIMBY is rife," Jennings told Livewire.

"There are 1,200 data centres planned in the US, [with] 400 already [built]. The hyperscalers thought we would be more amenable to data centres, but it seems not."

The implications extend well beyond NextDC. With billions being poured into AI infrastructure globally, the industry's ability to secure electricity connections and community support could become just as important as securing customers.

From AI darling to market casualty

NextDC's problems stem from electricity distributor Jemena suspending work on power connections to its M3 Melbourne data centre following opposition from residents and other stakeholders.

According to the company, the suspension means additional grid supply is now unlikely to arrive until FY28, delaying the delivery and billing of contracted capacity.

The financial consequences are massive.

NextDC has reduced its FY27 underlying EBITDA guidance from $385–410 million to $245–265 million, representing a downgrade of approximately 36% at the midpoint. Net revenue guidance has also been cut from $615-640 million to $475-500 million.

Meanwhile, the company has reduced its capital expenditure guidance by $750 million, paused new developments and land acquisitions, and is considering selling selected development sites.

The company also warned that contractual penalties associated with delayed capacity could push earnings below its already reduced guidance.

For Jennings, the market's savage reaction reflects both the scale of the downgrade and the company's existing short interest.

"It was a big downgrade to the outlook. There is also 8% plus shorted, so those sellers will keep it under pressure," he said.

The AI risk hiding in plain sight

Until recently, much of the AI investment narrative has focused on insatiable computing demand, semiconductor shortages and the enormous capital expenditure commitments of technology giants.

But building the infrastructure to support that demand is proving considerably more complicated.

In NextDC's case, community opposition has centred on plans to install concrete electricity poles reaching up to 22 metres high in Melbourne's West Footscray and Yarraville suburbs. It's not an isolated incident.

In September, Goodman Group abandoned plans for a $1.2 billion Sydney data centre following opposition from residents and policymakers.

These developments highlight a key tension investors now need to monitor much more seriously: while governments and technology companies are racing to build AI infrastructure, local communities aren't necessarily enthusiastic about having it on their doorsteps.

Is NextDC now a bargain?

After a near-40% collapse, bargain hunters might reasonably wonder whether the market has overreacted.

Jennings isn't convinced.

"It is too late to sell, but if you were holding, it's questionable why. Too soon to buy. Broker downgrades to come. Some serious [price target] erosion!"

His assessment suggests investors should be wary of treating the share price collapse as an automatic buying opportunity.

Adding to the uncertainty, Citi has warned that NextDC's troubles could extend well beyond FY27. According to CNBC, the investment bank flagged delays to planning approvals for M3's expansion and a longer-than-expected timetable for transformer upgrades as potential headwinds to earnings in subsequent years.

While NextDC maintains that underlying demand remains exceptionally strong, significant uncertainty surrounds the timing of electricity connections, potential contractual liabilities and the profitability of its Melbourne expansion.

The company has also warned that delays could affect its ability to draw down debt facilities while remaining compliant with financial covenants, although it reported approximately $8.7 billion in available liquidity at the end of September.

For now, Jennings believes investors should wait for the dust to settle, particularly with further broker earnings downgrades and price target reductions potentially on the horizon.