What's happening with the NextDC share price?

The NextDC Ltd (ASX: NXT) share price continues its descent.

Shares in the data centre operator have shed about 7% of their value in the past week.

In fact, the last few months haven't been great for NextDC shareholders.

Back in October last year, NextDC shares were changing hands for around $17.80.

As I write this, you can snap up a NextDC share for less than $12 apiece.

That represents a decline in value exceeding 30% in a few months.

As a NextDC shareholder, I find those figures a bit unsettling.

In fact, a few things about NextDC have unsettled me over the past year or so.

First, my investment in NextDC was largely based on the company's position as a leading and established Australian data centre operator.

I liked that it had a growing customer base and a good contracts pipeline.

I'm convinced the transition to the cloud will continue, and NextDC is well-placed to capitalise on that rising demand.

I also like the company's ambitious plans to expand in South East Asia.

I've long been bullish on the ASEAN nations and Australian companies with the ability and gumption to tap those lucrative and growing markets, particularly the likes of Indonesia, Singapore, Malayasia, and Thailand.

I appreciate such endeavours entail risks.

But for those who succeed, the rewards will be fruitful.       

I also liked NextDC's vast real estate portfolio.

According to NextDC, the company's property, plant and equipment were valued at around $3.8 billion as of the end of last financial year.

I suspect the true value is a bit higher than that figure, but that's a story for another time.

Still, $3.8 billion in property for a company of NextDC's size is nothing to smirk at.

For some context, NextDC's market cap is currently sitting around $7.6 billion.

The point is, for me, NextDC's property holdings were attractive.

Another AI boom

Then came the latest AI wave.

And the NextDC share price rode that wave.

The launch of OpenAI's ChatGPT in November 2022 was a key milestone marking the arrival of generative artificial intelligence.

And ordinary people could actually use it.

Investors saw the potential, and anything remotely connected to AI turned into gold.

At the end of October 2022, the NextDC share price was trading at around $8.15.

By the end of June 2024, the NextDC share price crossed the $18-dollar mark.

I'm not going to pretend I wasn't licking my chops as I watched the value of my holdings balloon.

But at the same time, I was growing increasingly wary.  

Too much hype, not enough substance

While I did enjoy the rapid gains, I was not fond of the idea that behind those gains was a lot of hype.

And I was less fond of what I perceived as NextDC trying to actively capitalise on that hype.

Don't get me wrong. AI will revolutionise the world. It already has. And that process needs data and data needs data centres.

But I think NextDC is taking things a little too far.

It seems NextDC seizes any opportunity to tout its link to AI.

Just look at the data centre's website, which now features a ridiculously large image of NVIDIA (NASDAQ: NVDA) CEO Jensen Huang, who has become some kind of AI pinup boy.

And so it is: as the AI hype dies down and reality sets in, the NextDC share price comes back to earth.

Now Alibaba (NYSE: BABA) Chair Joseph Tsai has warned of an AI bubble with data centres springing up at such a pace he believes they will outpace demand. 

The latest declines come amid words of caution directed at the data centre space.

Still, NextDC CEO and managing director Craig Scroggie seems to have timed the market quite nicely.

In October, he sold 850,087 NextDC shares for $17.74 per share, for a total value of $15 million.

Maybe I should have done the same.

But I'm still backing NextDC for the long run, and I see a fair amount of upside in its current value.