NextDC Ltd (ASX: NXT) shares have long been touted as one of the best ways to gain exposure to the rise of artificial intelligence on the ASX.
As Australia's leading independent data centre operator, NextDC acts as the physical backbone for AI deployment in the region.
Founded in 2010 by Bevan Slattery, the business has been expanding rapidly. It currently operates 19 data centres and has another nine more in the works.
AI is regarded as one of the most consequential technologies in history.
Therefore, investing in the infrastructure appeared to be a solid bet for many ASX investors.
At the same time, fund managers and brokers, including Wilson Asset Management and Morgans, regularly cited NextDC shares as a top stock pick, confirming their investing thesis.
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When did things go wrong?
On 21 October, NextDC shares plunged a staggering 42%. This wiped around $3 billion off its market capitalisation in a single trading day. That's a jaw-dropping event for any ASX share, let alone one that sits in the ASX 200.
Many observers would cite the company's earnings downgrade (released that morning) as the reason for the plunge.
In that announcement, management disclosed that the company's electricity distributor, Jemena, has suspended network connection works for its new M3 Melbourne data centre in West Footscray. NextDC slashed its FY27 guidance as a result.
However, that news came at a time when controversy surrounding data centres had been growing.
Just a few weeks prior, Firmus Technologies abruptly abandoned its IPO plans. The subsequent coverage has been far from flattering. In a recent Australian Financial Review article, UniSuper Chief Investment Officer John Pearce suggested the valuation should have been "closer to $1 than $11".
There has also been increasing community backlash against data centres. According to the Australian Financial Review, the government is set to ban them from being built near homes and recreational facilities.
While it's impossible to confirm, it appears that NextDC's downgrade came at a time when sentiment had already begun to turn. Without these external factors, the share price reaction may not have been so drastic.
Where do things stand after the sell-off?
AI is here to stay. Despite these headwinds, data centres remain critical.
After such a significant sell-off, ASX investors may be wondering whether this is a rare opportunity to buy NextDC shares at a cheap valuation.
Many experts expect NextDC shares to turn around. My colleague Samantha Menzies reported that market Index data shows most analysts still rate the ASX technology stock a buy.
Some brokers are particularly bullish. In particular, as reported by my colleague Cameron England, UBS has a price target of $18 on NextDC shares – that's nearly three times above the current share price. That level of upside is enough to entice most investors to consider buying the stock.
So, with the share price down nearly 50% this year and AI tailwinds intact, is now the time to jump in?
Before rushing in, there is an upcoming event to consider, which could see NextDC shares trade even lower.
