Data center stocks struggled Tuesday following a lackluster overnight IPO of a South Korean cloud company that was compared to U.S. neocloud CoreWeave.
Shares of Elice fell 30% in their market debut overnight as investors grew increasingly wary of providers of computing power dedicated to artificial intelligence due to concerns about overcapacity.
Bearish sentiment has spread to U.S. tech stocks. CoreWeave stocks lost 4% just after market open Tuesday; Nebius lost about 4%. Irene was down about 6%.
HSBC said in a note Monday that the problems at heavily indebted CoreWeave would not go away.
“Debt market issues and moderating LLM revenues exacerbate structural concerns about neoclouds,” wrote Abhishek Shukla, an analyst at HSBC. Shukla has a lower rating on CoreWeave with a price target of $39, implying a downside of 36.5%.
Elice’s IPO was modest, raising only $150 million, according to Reuters. Its market capitalization also equates to around $1.3 billion. The company offers a range of AI-related services, including cloud computing equipment, training libraries and application interfaces for businesses.
Despite its size, investors likely see it as a sign of how they feel about AI development.
The problems for neoclouds, which some investors see as the weakest link in the emerging AI value chain, began earlier this month with less-than-stellar revenues reported by private AI algorithm companies and pressure from higher interest rates.
The Frontier Anthropic model showed a deceleration in quarterly revenue, with sales falling from 140% growth in the second quarter to 45% in the third. OpenAI also disappointed, reporting revenue $20 billion lower than analysts expected, Wolfe analyst Stephanie Roth said in a note Sunday.
Profitability concerns for AI algorithm companies were at the center of a report released last week by consultancy Gartner, predicting that 80% of neoclouds could cease independent operations by 2030.
“Our research indicates that enterprise and consumer AI revenues will be insufficient to support profitable returns on all planned AI investment spending” between 2027 and 2030, said Will Sommer, senior managing analyst at Gartner.
Gartner maintained its analysis in an interview with CNBC on Monday.
“Right now we have more computing capacity than demand, and a lot of the tokens and processing power are being given away in freemium solutions,” Gartner chief forecaster John Lovelock told CNBC. “Everyone in the AI race is fighting for a last-man position. Nearly every market Gartner tracks in our AI race is at risk of collapsing and becoming a duopoly.”
Chip stocks are also feeling some struggles on Tuesday. Micron is down almost 2% as the market opens; AMD is down about 1.5%; And Nvidia is down about 1%.
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