VNET Group, Inc. (NASDAQ:VNET) stock plummeted 5.06% during Monday's intraday trading session, despite the company reporting better-than-expected Q3 2024 results and raising its full-year revenue and EBITDA guidance. The stock's decline reflects concerns over the company's ongoing struggles in its retail Internet Data Center (IDC) business, which overshadowed the strong growth in its wholesale IDC segment driven by high demand for AI applications.

While VNET's wholesale IDC business has been a bright spot, benefiting from the AI boom and winning over 300MW of new orders in the past year, with 90% of them driven by AI demand, the company's retail IDC segment continues to face headwinds from a challenging macro environment. Retail IDC revenue declined year-over-year due to lower utilization rates and weaker monthly recurring revenue (MRR), as small and medium-sized enterprises adjust their IT spending.

Investors are also concerned about potential competitive risks from emerging modular AI solutions and on-premise AI offerings, which could lower the demand for VNET's wholesale IDC services. Additionally, there are fears that higher future capital expenditures (capex) aimed at meeting the outsized AI demand or fending off competition could impact the company's free cash flow generation.