AI Only Seems to Stretch So Far Before Snapping Back

The chip stocks were down last week as investors lost confidence in AI companies with soaring debts (ahem, CoreWeave). But by Monday, some investors shook off their doubts and bought the dip.

The Nasdaq gained nearly 2% Monday morning, putting it on track to reverse its 4.5% fall last week. Last week, CoreWeave shares plummeted more than 25% as concerns about its $50 billion debt load mounted — concerns that were stirred up when tech investor and “All-In” podcaster Chamath Palihapitiya posted about CoreWeave’s balance sheet on X and Elon Musk commented “Yikes.” 

But analysts think investors overreacted last week and that AI companies, even ones with piles of debt on their balance sheets, still have room to grow. 

Picking On Picks and Shovels

Companies like CoreWeave are taking on debt to build the foundational infrastructure needed to scale AI — in CoreWeave’s case, that means data centers. Investors have grown increasingly concerned about that massive build being met with enough demand to make sure companies can turn scrappy financing now into sustained revenue later. 

While fears hit a fever pitch last week, they cooled this week as analysts voiced expectations that AI-infrastructure plays are back on track after hitting a normal speedbump:

• Barclays analysts wrote that CoreWeave’s debt situation isn’t a signal of the health of AI CapEx, while Goldman Sachs upgraded CoreWeave from “neutral” to “buy.” CoreWeave’s CEO, in a note obtained by CNBC, chalked up the investor pullback to a market misunderstanding of the new technology it’s building. JPMorgan didn’t change its rating on CoreWeave but did write in a note that the perceived risk was overdone. 
• JPMorgan upgraded a different kind of AI stock, Intel, to “neutral” from “underweight,” after the company’s shares tumbled last week in the larger AI rout. The move signals an expectation for AI demand to continue boosting sales for hardware makers. Intel rose more than 3% Monday, while chipmaking peers including AMD and Micron also bounced back. 

VIP Clients: Some of the concerns about infrastructural companies are because they’re heavily dependent on a handful of hyperscalers. A major one, Meta, reports tomorrow. Updates on the popularity of its Muse AI agent could help build investor confidence about the continued demand for AI — especially from average consumers, not just enterprise clients. Analysts have pinned Meta’s expected AI cash burn for next year at around $200 billion. AI infrastructure companies count on the continued spending of companies like Meta, but investors will also want to know how and when the hyperscalers themselves start seeing sizable returns on their investments. SpaceX and Tesla also report earnings this week, and investors will be listening for news about Grok-maker xAI as well as any futuristic AI-related plans — from robotaxis to the Optimus bot.