Fresh concerns about the AI-infrastructure buildout emerged Wednesday as Australian data-center operator NextDC slashed its earnings outlook, adding to last week's worries about debt costs and funding.
Shares of NextDC sank more than 40% in Australia after the company cut its annual earnings forecast and said it may sell some of its development sites.
The worsening financial outlook came as a power distributor stopped work on one of NextDC's projects due to safety concerns and community opposition. This led the company to stop all planned data-center developments and focus on building capacity for customers under contract.
The data-center operator's warning was the latest signal that all is not well in the AI trade even as robust SpaceX earnings were breathing fresh life into many AI-related stocks on Wednesday.
But the backdrop is still dour.
CoreWeave, the cloud computing company, sparked stock market panic last week after its corporate bonds sold off, signaling credit investors' concerns about mounting debt and future borrowing costs associated with the AI and data-center buildout.
Blackstone-backed data-center operator AirTrunk, meanwhile, recently delayed its planned Singapore initial public offering while Australia-based data-center operator Firmus Grid scrapped its own IPO plans earlier this month.
Residents in the U.S. have also been pushing back against data-center development, and Wall Street expects scrutiny to intensify heading into the midterm elections.
William Blair analyst Tim Mulrooney said in a research note there are currently four governors in the U.S. who support statewide data-center moratoriums and that this number could rise to seven after the November elections.
"We expect near-term volatility in companies under coverage tied to AI infrastructure heading into the election," Mulrooney said, highlighting GE Vernova and TeraWulf, among others.
This raises the prospect that fewer data centers will be built than expected and that some contracts supporting the buildout will be delayed or go unfulfilled. On the flip side, capacity constraints could help cloud providers maintain pricing power for access to graphics processing units, or GPUs.
The stocks with significant exposure to data-center buildout are GE Vernova, Constellation Energy, Dell Technologies, and Comfort Systems, along with chip stocks such as Nvidia, Micron Technology, and Taiwan Semiconductor Manufacturing.
The effects of a slow-down in data-center construction could ripple across the stock market and put even more pressure on Anthropic's upcoming IPO, which is expected in November.
The cracks in the AI trade are becoming clearer. Whether the whole trade begins to crumble is the question.
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