To The Moon

The AI data-centre trade had been one of the market’s biggest growth stories. But Thursday’s sharp selloff shows that investors are starting to look beyond the excitement around AI and focus on the risks of building the infrastructure behind it.

Applied Digital, Cipher Mining, IREN and Nebius fell around 15%. Core Scientific dropped about 13%, while Galaxy Digital lost around 10%. CoreWeave also came under pressure.

These are significant declines, but I think the bigger question is what is driving them.

1. Building data centres may become more difficult

One concern is the changing political environment in the US. Following the midterm election results, investors are worried about tighter rules and greater scrutiny of new data-centre projects.

Local communities are also raising concerns about electricity costs, water use and the impact of large facilities on the environment.

This matters because a data centre cannot operate without enough electricity, suitable land, water and government approvals. Even if demand for AI computing remains strong, delays in construction could push back the date when companies start earning revenue.

Reuters reported that UBS estimated around 30% of expected US data-centre capacity additions in 2028 could be at risk from possible construction pauses.

2. Smaller operators may face greater pressure

I think smaller data-centre operators and AI infrastructure companies deserve closer attention during this selloff.

Companies such as IREN, Applied Digital and Cipher need to invest heavily in buildings, equipment and power infrastructure before they can generate revenue from those projects.

If construction is delayed, they may still have to pay interest, operating costs and other expenses while waiting for projects to become productive.

This creates a risk: the company may have strong customer demand on paper, but the revenue may take longer to arrive.

For companies that rely heavily on borrowing, higher financing costs could make the situation even more difficult.

3. AI demand and AI infrastructure stocks are not the same thing

I do not think this selloff automatically means that AI demand is disappearing.

Businesses are still exploring ways to use AI, and demand for computing power remains an important long-term growth opportunity.

However, there is a difference between companies selling AI services and companies building the infrastructure needed to support them.

A company can have a promising project pipeline, but investors still need to see completed facilities, actual customer usage, growing revenue and improving profits.

That is why I would not judge these companies by their share-price drops alone.

4. What would I watch before considering a recovery?

For me, there are four important things to monitor:

• Project progress: Are data centres being completed on schedule, or are approvals and power connections causing delays?

• Customer contracts: Are companies securing long-term customers with clear revenue commitments?

• Financial strength: Can they fund construction without taking on too much debt or issuing too many new shares?

• Profitability: Are revenue and gross profit growing fast enough to justify the large investment?

A long project pipeline is encouraging, but completed projects and actual cash flow are more convincing.

My view

I see this as a reminder that the AI investment opportunity is not without risks. The long-term demand for AI may remain strong, but not every company involved in the data-centre boom will benefit equally.

I would be cautious about buying simply because a stock has fallen 10% or 15% in one session. A lower share price does not automatically mean a company is undervalued.

The companies I would pay closer attention to are those with secured power, reliable customers, manageable debt and a clear path to positive cash flow.

The next stage of the AI boom may not be about who announces the biggest data-centre project. It may be about who can actually build it, power it and make money from it.

For discussion purposes only. Not financial advice or a recommendation to buy or sell any security.