Recently, worries over financing for data centers have caused quite a stir in the AI market, with fears dialing up this Wednesday due to new developments concerning Oracle.
The semiconductor giant Broadcom saw its shares fall by 4.5% this Wednesday, chipping away at a total drop of over 21% over the past five days—marking its steepest decline over such a stretch since late March 2020, according to Dow Jones Market Data.
Other chipmakers in the scene, like Nvidia, Advanced Micro Devices, and Micron Technology, were also down on Wednesday. Notably, Micron just released its fiscal first-quarter earnings results, which didn’t seem to help its share performance. For the fifth straight day, the PHLX Semiconductor Index fell, ending the period down more than 10%, as reported by Dow Jones.
Gil Luria, an analyst at D.A. Davidson, mentioned in a MarketWatch email that growing uncertainties about Oracle and CoreWeave’s ability to secure funding for their data center projects are weighing down the entire AI industry.
If these companies can’t secure additional funding, they may struggle to continue investing in chips, Luria added.
On Wednesday, Oracle’s stock fell over 5% following a report highlighting stagnated discussions between Oracle and alternative-asset manager Blue Owl Capital regarding a $10 billion data center venture. This project was aimed at building a 1-gigawatt data center in Michigan for OpenAI, as reported by the Financial Times, citing anonymous sources.
However, an Oracle spokesperson later told MarketWatch that the Financial Times report was “incorrect,” advocating that they are in discussions with real-estate developer Related Digital. According to the spokesperson, “Final negotiations for their equity deal are going forward on schedule and as planned.”
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Jordan Klein from Mizuho added that Oracle’s funding troubles indeed play a crucial role in dragging down AI stocks, coupled with minimal market activity as the year winds down.
On the flip side, stock for CoreWeave dropped over 7% after short-seller Jim Chanos criticized the company, alongside worries about delays in their data center projects.
Chanos, known for predicting Enron’s collapse, depicted neoclouds like CoreWeave during an podcast discussion published Monday, calling it a “commodity business.” He noted that because CoreWeave hosts Nvidia chips, it doesn’t fully capitalize on the value those chips can generate. CoreWeave funds research with debt for Nvidia’s graphics cards situated in rented data centers, and clients pay to utilize those chips. He also expressed concerns about the high depreciation rates of AI chips potentially threatening CoreWeave’s business model.
The Wall Street Journal further reported on delays CoreWeave is encountering with its data-center project in Texas, where the construction meant for OpenAI has been pushed back by several months, citing sources familiar with the situation.
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Still, some Wall Street analysts aren’t sweating over the current downturn in the AI market.
Daniel Newman, CEO of Futurum, stated that he sees little to no signs suggesting a halting of AI proliferation, acknowledging that concerns about debt financing tend to highly influence the current market mood. Newman believes these anxiety levels about financing might overly inflate fears regarding true demand within the AI sector.
Instead of a depreciation spiral, Newman describes the current stock slump as “a speed bump as investors process capital expenditures and associated risks.” He remains optimistic, asserting that fundamentals in the sector are stable and demand for AI technologies is stronger than ever.
Reporting contributed by Christine Ji.
