'Go long on Prozac': Wall Street reacts to data-center operators’ plunge
Investors are less and less willing to finance AI infrastructure “at any cost,” Saxo Bank notes / Photo: Nebius
Traders continued to sell shares of AI infrastructure providers on Thursday. Data-center operator CoreWeave fell almost 10% in early trading, while cloud provider Nebius, founded by Arkady Volozh, dropped as much as 12%. The intensifying sector selloff pushed the Nasdaq down to its lowest level in almost a month. What are Wall Street analysts saying about investors’ flight from the AI sector and the risk of a bubble bursting?
The selloff does not signal a collapsing AI space, Saxo Markets Chief Investment Strategist Charu Chanana noted in a Thursday note. Investors are simply becoming less willing to finance AI infrastructure growth “at any cost” and increasingly questioning how much future growth is already priced in, how the buildout is being financed, and when these investments will generate sufficient returns, she argues. Chanana pointed to the rise in CoreWeave’s bond yields, which have exceeded 16%. Meanwhile, the AI ecosystem is becoming increasingly interconnected, she emphasized: “Infrastructure providers depend on financing and large customer contracts, while equipment suppliers depend on their customers continuing to expand capacity. If higher borrowing costs eventually force some infrastructure providers to moderate spending, the consequences could extend across the supply chain.”
“The market is waking up to the fact that AI demand and a profitable business model are two very different things,” Axel Rudolph, chief technical analyst at IG Group, told Reuters. “It looks more like investors questioning how the build-out is being funded than a sudden collapse in appetite for AI computing. But if the cost of capital keeps rising, even strong demand may not be enough to protect the most heavily leveraged players.”
Ultimately, the AI revolution will be judged not just by how much computing power we build, but by how profitably we use it, reckons Crossbridge Capital Chief Investment Officer Manish Singh. Future cash flows must justify today’s enormous capital commitments, and someone must finance the gap in the meantime, he said. “AI may be the future. Debt servicing is still the present,” Bloomberg quoted Singh as saying.
“Probably a good time to be long anything with exposure to Prozac and therapists,” quipped a tech sector analyst at Mizuho Securities quoted by Barron’s. “I sense demand and pricing for both could quickly rise.”
