People power in the suburbs exposes the fragility of the AI boom

A small data centre operator with three sites being briefly valued at $44 billion, more than Woolworths.

A neighbourhood dispute over power poles that wipes $3 billion off a listed company's value in a single day.

And trillion-dollar global infrastructure build-out getting a wake-up call from the burbs.

The fragility of the AI boom has been on full display in recent weeks.

An industry that has ignored the concept of "social licence" is colliding with people committed to their communities. And investors are feeling the financial consequences.

Australia ringing the alarm on AI valuations

It's a long way from West Footscray to Wall Street.

But as the speed of communicating information has fallen to milliseconds, the titans behind trillion-dollar deals in our AI-boom economy may have spent time looking up "WeFo" on Google Maps, reading about plans for Tasmanian data centres and wondering: is this where it started to unravel?

Let's step back.

Shares in data centre operator NEXTDC fell 42 per cent in a single day after the company revealed that delays in getting power to a proposed expansion of its massive complex in inner-west Melbourne meant its future earnings would be cut by a third.

A neighbourhood dispute and an act of civil disobedience, residents parking their cars in the street to deny trucks access, had stopped the march of industrial-scale power poles that would provide the juice for the next stage of the data centre.

Firmus hit a similar hurdle.

The AI data centre company wanted to list on the stock exchange with an initial public offering (IPO) that would have valued it at about $44 billion.

It would have been one of the five biggest floats in the world this year, the biggest in Australia since Telstra went from being government-owned to listed on the markets.

But it fell apart. For one reason, and then a lot of them.

The key one was that large investors didn't think the company was worth what the company thought it was. They declined to buy it at $11 a share, which would value it as one of the 20 largest firms in Australia, more valuable than toll road operator Transurban and supermarket giant Coles.

But the others are important, too: growing community opposition to power and water-hungry data centres and the transmission lines needed to feed them; fears about the job-killing nature of artificial intelligence; the collision of election cycles in the US and Australia with voter unhappiness about economic instability and uncertainty.

AI not dead, but hitting resistance

The idea of social licence is that it's the ongoing acceptance and approval of an organisation's activities by people affected by them and society at large.

Whaling has lost its social licence. Very few countries now kill whales.

AI and data centre companies, spawned from the "move fast, break things" ethos of the tech sector, rapidly evolved from medium-sized warehouses in industrial areas to massive facilities closer to homes.

They became the physical manifestation of people's fears about AI. At the end of their street.

Standing outside NEXTDC's massive facility, the behemoth is undeniably dystopian. Devoid of any visible staff, the entirely black box rises vastly above the single-story brick and weatherboard houses on the other side of the street.

Protests in Europe and the US tuned leaders to the bad vibes coming from constituents. They didn't see the benefits of facilities that pushed up power bills, soaked up precious water resources and appeared to be in the business of making masses of people unemployed. The number of jobs in data centres, post-construction, is minimal.

But don't expect the sector to go away. As analysts at Morningstar detail, NEXTDC's assets, "both current and planned, are still in great demand". In addition, community concerns over the centres may increase costs and force new ones further away from built-up areas:

A single-street power pole dispute that costs $3 billion

There's a reason NEXTDC's difficulties are getting attention. It exposes the fragility of the AI boom that is already occurring on a scale the world has rarely seen.

Filip Tortevski, senior analyst at Wealth Within, calls it the "first serious warning shot" as investors weigh if this is an isolated incident or the beginning of something much bigger.

"What's concerning isn't simply the $140 million in revenue affected by electricity delays," they write.

"It's the potential chain reaction nobody was pricing in. NEXTDC has acknowledged that delayed customer billing could affect its ability to draw on $6.7 billion in available debt facilities. It has also warned that the delays could affect property valuations, with the financial impact still unknown.

UniSuper's chief investment officer John Pearce helps manage $175 billion in assets.

Before the Firmus float was pulled, he wished the company well and explained why the fund wouldn't invest a cent in it.

"It all comes down to valuation. We think that Firmus indeed has a compelling story. It just doesn't have a compelling valuation. At the current valuation, it's priced to perfection. So much has to go right to justify the valuation."

Priced to perfection. The amount the company is valued at requires every single plan to run perfectly, in every element.

Many of our large AI and data centre companies appear to rest on the same belief.

This is a world of storms and natural disasters. Of electricity pole installation. Of technologies from labs we hadn't heard of three months ago. Of changes in government. Of residents who don't feel heard. Of shipping delays. Of construction challenges.

Our world is a lot of things. Perfect it is not.

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