By Adam Clark

Some of the hottest artificial-intelligence infrastructure stocks have cooled off after earnings. CoreWeave and Nebius were finding their footing on Wednesday after poorly received earnings but that doesn't mean shareholders in the companies can rest easy with debates about the useful life of their hardware still swirling.

CoreWeave, Nebius, and peers such as IREN have surged this year on the back of multibillion-dollar contracts to provide AI computing capacity to large technology companies. The so-called "neocloud" companies are benefiting from AI demand outstripping supply.

However, as Barron's has previously written, their strategy comes with risk, taking on significant capital expenditure and debt burdens to put up the data centers to power their revenue growth. That leaves them exposed to any slowdown and makes them the likely first victims if AI investment does turn out to be a bubble.

We got a glimpse of how quickly things can turn sour as CoreWeave fell 16% on Tuesday, with its revenue guidance falling short of market forecasts due to one of its partners falling behind in data-center development. Meanwhile, Nebius dropped 7% as even its more-than-fourfold quarterly revenue growth missed expectations. IREN lost 4.6% while smaller companies such as Cipher Mining and TeraWulf also fell.

That doesn't mean a bubble is popping. At the moment the issue looks to be more about the ability to meet demand and CoreWeave and Nebius stocks were steadying early Wednesday. But high expectations and valuations create the potential for volatile moves.

That's fertile ground for short sellers -- investors betting on a drop in the stocks. Famed short sellers Michael Burry and Jim Chanos have both publicly criticized the assumptions behind the neocloud model -- in particular whether the pricey Nvidia AI chips they are buying now will hold their value.

Different assumptions about the useful life of a current-generation AI processor and how much it can be rented out for over its lifetime can make or break the business model. For example, CoreWeave assumes its chips have a six-year depreciation period, whereas Nebius uses a four-year span. That can be the difference between hundreds of millions in depreciation costs annually.

So far, the optimists appear to be winning. CoreWeave CEO Michael Intrator told analysts that one of its customers renewed a contract to use Nvidia H100 graphics-processing units (GPUs) -- a chip that first came out in late 2022 -- at a price within 5% of the original agreement. But the question is whether that level of demand will be sustained over the long term.

"In the future, we'll look for duration of GPU lives and potential impacts from the release of the next generation [Nvidia] Ruben GPU, potentially changing this dynamic, but early pricing stability is a welcome sight," wrote Cantor analyst Thomas Blakey in a research note.

Shareholders will have to hope that stability can last.

Write to Adam Clark at adam.clark@barrons.com

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November 12, 2025 08:12 ET (13:12 GMT)

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