An AI Winter Is Coming: AI Data Center Stock Values Tanking - Part 1

Stocks of publicly traded companies including Coreweave, META, Microsoft, and Oracle have lost 4% to 39% of their stock market value over the last year. Coreweave's core business is building data centers stocked with GPUs to rent AI service providers for estimation and inference. Obviously, this makes the standard data center look downright capital light. Racks must be populated with servers and GPUs and capable of handling 120Kw power loads. So power infrastructure and backup alone cost many multiples more on a per square meter basis than the standard telecom hotel. Moreover, these data centers must be bigger because a large language model might have trillions of parameters to be estimated. Coreweave's massive debt loads have led to a 37% decline in its market value over the last twelve months. 

Secondly, customer switching costs are very low in the AI data center market. AI service providers are software companies. They download their data into the bare metal servers, estimate them, and then distribute them to inference nodes to provide service to end users. No need for physical colocation. Right now there is excess capacity in the market as owners of installed GPUs have contacted me asking to offload their excess capacity. The SpaceX deals vividly illustrate the problem. Its own division, xAI, is floundering in terms of subscription growth and its own data center lie fallow. This is why it is doing toothless deals (no early termination penalties) with Google and Anthropic.

Although META does not build AI data centers for rent to third parties, it does so for itself. So it faces the same problem of huge investment spending with uncertain returns. META forecasts its 2026 capex to be almost $100 billion. Yet its cumulative AI service revenue to date is zero. Indeed, Zuckerberg just announced META's first services. They will be sold at 20% to 40% below the market. It is a desperate move that will move market pricing down in an industry where no provider is booking a profit on AI services. Facebook stock is down 4% year/year.

Microsoft also has a big imbalance between revenues and capital spending. It plans $190 billion in 2026 capex, but its annual AI service run rate is only $37 billion. Its stock has fallen 23% over the last 12 months.

Many of the fathers of modern AI have disowned their children. Yann LeCun, winner of the 2016 Turing Prize, the highest honor in computer science, has declared large language models to be 'silly'. He recently left his position as head of META AI research to found a new company in Paris pioneering a new approach to general artificial intelligence.

All-in-all, the Big Picture looks a lot like fibre optic overbuilding during the dotcom era that led to a crash in bandwidth prices and many bankruptcies. The main difference is that many current players have monopoly revenue sources in areas like operating systems, browsers, and social media.

Graph of Coreweave Stock Over Last 12 Months

Graph of META Stock Price Over Last 12 Months

Graph of Microsoft Stock Price Over Last 12 Months

Comments

Post a Comment

Popular posts from this blog

The British Empire's Resilient Subsea Telegraph Network

Image
The British empire had largely completed its Red Line cable network by 1902. This network allowed news and messages to be delivered in a few minutes or several hours at most depending on the message queue's length. It spanned the globe and formed a network ring so traffic could be routed in the opposite direction in case of disruption. It was, as Dr. Michael Delaunay has argued, a highly resilient network. Besides the ring configuration, the network relied on multiple cables between any pair of given end points to ensure uptime. The British military believed it would be impossible for an enemy to cut enough cables on any route to sever all communications between any given pair of end points. The Committee of Imperial Defense concluded that 57 cables must be shut down to isolate the British Isles from the Red Line network. The figure was 15 for Canada and 7 for South Africa. The Empire was self sufficient in terms of manufacturing the components for a subsea telegraph cable and re...
Read more

The Short Life Expectancy of Starlink's LEO Satellites

Image
According to FCC filings Starlink shut down almost 500 Starlink satellites during the first half of 2025. The company had them reenter the atmosphere where they burned up. What is striking is that these satellites were all less than 5 years old. The general consensus is that LEOs have a life expectancy ranging from 5 to 8 years. Shorter than expected life spans for the satellites will hit Starlink's income statement hard by increasing network depreciation and replacement needs. However, Starlink has managed to lower its LEO's manufacturing costs down to $500K versus initial figures around $1 million. So these production economies of scale might offset some of the higher than expected depreciation. However, there are also rocket launch costs as well. It costs Starlink about $3 million to put a satellite into orbit. The Falcon 9 costs $67 million per flight and delivers 23 LEOs into low Earth orbit. As a private company Starlink financials are a bit of mystery. The company press ...
Read more

Here We Go Again: Several Major Cables Down Off Yemen

Image
Three industry insiders have confirmed the 'epicenter' of the outages is in Yemen coastal waters at a depth of only one 100 meters. This strongly suggests fishing or more likely an anchor is responsible. Multiple sources have told me that neither Egyptian or Saudi Internet services has been degraded, but the Persian Gulf has been hit hard as well as Pakistan. This is consistent with the epicenter being off Yemen. It is also consistent with the cables reported down below. Four Cables Definitely Down: 1. EIG. 2. SWM4. 3. IMEWE. 4. Falcon Lower left map is SMW4. Center is EIG. Far right is IMEWE. Total capacity of these four cables is approximately 44 Tbps. Pakistan is heavily dependent on SWM4, EIG, and IMEWE. Scattered reports initially suggest AAE1 may also be down. But it is not.
Read more