Nebius and CoreWeave stocks have sold off this month as investors have remained concerned about the AI bubble. CoreWeave has slumped by over 60% from its peak, erasing billions of dollars in value. Similarly, Nebius and other top neocloud companies like IREN, RUM Group, and RIOT platforms have slumped.
Ken Griffin warns of an AI bubble
The ongoing Nebius and CoreWeave stock retreat is happening at a time when top analysts are warning about the AI bubble. Ken Griffin, a top billionaire, said that the market was clearly in an AI bubble.
Griffin’s statement is notable because he is the founder of one of the biggest and most successful hedge funds in the world. Griffin also started Citadel Securities, a company that handles billions of dollars in trades every day.
His statement comes at a time when other analysts are warning of the bubble. The most notable one is Ray Dalio, another hedge fund manager who started Bridgewater Associates. He believes that we are in an AI bubble that could burst soon as interest rates continues rising.
Michael Burry has gone further. He has not only warned about the bubble, but he has also taken short positions in some of the biggest companies in the industry, including Nebius.
These statements come at a time when the AI Stock Bubble Index has jumped to the elevated risk zone of 74. This index looks at some key metrics like valuations, funding hype, and revenue uncertainty.
A bursting of the AI bubble would have a big impact on neocloud companies like CoreWeave and Nebius since it would hit some of their biggest customers.
Nebius and CoreWeave stocks are facing other risks
Meanwhile, Nebius and CoreWeave are facing other risks, which explain why their stocks have plunged, while their short interest has risen.
Gartner, a top research company, highlighted one of the risks in a report last week. It said that AI infrastructure companies will need to generate trillions of dollars in revenue to justify their spending plans. As a result, the report showed that these companies will need to announce large impairments by 2030.
Another challenge is that the industry is becoming highly competitive. Nscale, a British data center company, is in talks with Anthropic for another large contract, a few weeks after the two reached a $45 billion agreement.
Most Bitcoin mining companies have entered the industry. On top of that, firms like Lambda, Firmus, and SpaceX are becoming large players in the data center industry. These fears explain why their short interest has remained at an elevated level this year.
Revenue growth and depreciation
On the positive side, Nebius and CoreWeave’s businesses are thriving, with their revenue growth soaring. CoreWeave said that its revenue jumped to over $2.5 billion in the third quarter, and analysts expect the rally to continue. Nebius, on the other hand, said that its revenue soared to over $529 million.
Wall Street analysts expect that CoreWeave’s annual revenue will jump to $12.8 billion this year followed by $26 billion next year. Nebius is expected to make $3.3 billion this year and $12.2 billion next year.
The challenge, however, is that the firms are announcing huge depreciations, a trend that may continue as newer chips are launched.
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