There's no way around it, NextDC Ltd (ASX: NXT) shares have had a tough week.
Despite closing up 0.41% at $14.69 on Thursday, shares in the S&P/ASX 200 Index (ASX: XJO) data centre operator and developer remain down 8.53% since this time last week.
To put that in some context, the ASX 200 has gained 1.37% over this same period.
So, are NextDC shares now a good buy, or is this a tech stock to avoid?
Why did NextDC share drop this week?
To get a better idea of whether we're eyeing a potential bargain stock or a possible falling knife, we first need to consider why NextDC shares have slipped almost 9% in a week.
Most of the data centre operator's share price losses came on Tuesday when the stock closed down 7.2%.
As you may be aware, that sell-down followed news that Chinese open-source artificial intelligence (AI) developer DeepSeek had launched a low-cost, low-power generative AI model.
Investors worldwide reacted by selling down 'traditional' AI stocks, such as generative AI chip maker Nvidia Corporation (NASDAQ: NVDA) and data centre stocks like NextDC.
(Aussie markets were closed for the Australia Day holiday on Monday, meaning ASX shares weren't impacted until Tuesday.)
Commenting on the sell-off earlier in the week, Interactive Brokers' Steve Sosnick said investors have been complacent in their AI assumptions:
The sudden, adverse market reaction to DeepSeek indicates that some of the key assumptions that have been driving the AI trade, and hence major indices, are getting reassessed today. Part of the today's sudden adverse market reaction was a direct result of a 'wave of complacency' that overtook the equity market.
Is the ASX 200 data centre operator now a buy?
While the future is inherently uncertain, I believe investors overreacted to the DeepSeek news in selling off their NextDC shares.
The AI revolution is in its early stages and is likely to keep evolving at an epic pace. And whether the US continues to dominate this space, or it becomes a broader competition that includes China and other global powers, I believe the technology that enables AI will continue to need a home for the foreseeable future.
Or data centres, in other words.
Among leading brokers, JPMorgan has a bullish outlook on NextDC shares.
According to JPMorgan's head of Australian equity research, Jason Steed (quoted by The Australian Financial Review), "Our team remains positive on the artificial intelligence/hyperscale capital expenditure thematic, with NextDC our preferred expression."
Citi also forecasts that investors could make some big potential gains buying NextDC shares at current levels.
Contrary to the jitters sweeping the markets this week, the broker expects that DeepSeek is likely to spur more demand for data centres across the world.
Citi retained its buy rating on NextDC with a $20.00 price target. That represents a potential upside of 36% from Thursday's closing price.
