NextJS Image on Netlify Demo
This is a demo of the NextJS Image component on Netlify. At the time of implementation, it seems that the image is only transcoded to a modern image format if Netlify Edge Functions (which are in Beta) are enabled.
This site is deployed to Netlify twice, once with Edge Functions disabled, and again with them enabled.
You are looking at the deploy WITHOUT Netlify Edge Functions. If you inspect the network traffic, you should expect to see the below image downloaded in the outdated original jpg format. You can also visit the version of this site with edge functions
The following image is rendered with the NextJS Image component.

Photo by Nils Nedel on Unsplash