The wave of artificial intelligence may be entering a less tolerant phase, with investors increasingly questioning whether the billions of dollars invested in data centers will translate into sustainable profits.
South Korea's AI infrastructure provider Elice suffered a heavy setback on its first day of trading, becoming the latest warning sign that investors may be examining more closely the ambitious expansion plans and profit paths.
The neocloud company, headquartered in Seoul, saw its stock price drop by 32% on Tuesday, the first day of trading, despite its initial public offering being priced at the upper end of the range, raising 201 billion Korean won (151 million US dollars). The stock then rebounded by about 30% on Wednesday. Neocloud provides specialized cloud infrastructure designed for AI workloads.
Yorkville Ives's technology analyst, Dan Ives, stated: "This is a critical moment in tech trading. Investors are trying to better distinguish between winners and losers, as well as to identify if there are any weak links in the tech AI industry chain."
He added, "Patience is running out, and the scrutiny will intensify, especially for companies like some neocloud that have taken on a large amount of debt."
This weak listing performance highlights a broader shift in market sentiment towards AI trading. Amidst rising borrowing costs and concerns about debt-driven expansion, investors may be forced to distinguish between companies that can generate cash from this upsurge and those that are making large expenditures in anticipation of future demand.
The Billy Leung of Global X ETFs indicates that the AI transaction has shifted from a phase where the announcement of capital expenditure itself is seen as positive, to a phase where investors begin to question who will truly be able to obtain sufficient returns from this capital investment.
"The market is distinguishing between two types of companies: one type needs capital to continue their construction, while the other type receives compensation as their construction progresses continuously."
Leung says that the most vulnerable are those neocloud providers whose expansion speed exceeds their cash creation capacity, especially those companies that are highly dependent on external financing.
Zacks Investment Research, the Chief Stock Strategist, stated that CoreWeave is "a typical representative of the whole story." He said, "This is a widespread market pressure, not just speculation." He pointed out that credit spreads are widening.
If the cost of financing rises faster than revenue growth, companies that rely heavily on borrowing to build computing power may face difficulties, especially before their facilities reach full capacity and as construction costs and depreciation continue to accumulate.
This transformation is particularly important for Asia, as the Asian technology market is highly exposed to the semiconductor and memory chip industries, which have been driving the global AI investment boom.
Blank said, 'The semiconductor industry in the United States and AI have been overbuilt. In South Korea, the situation is even more severe.'
Demand beneficiaries
South Korea's SK Hynix and Samsung Electronics have always been among the biggest beneficiaries of the soaring demand for advanced memory chips, but as investors re-evaluate the sustainability of AI spending, the stock prices of these two companies are also under pressure.
Leung indicates that the hardware and storage components involved in the transactions between Asia and AI are more directly connected. Therefore, when investors question the capital expenditures and financing of AI, South Korea and other North Asian tech markets will be more significantly affected.
He added that the profit expectations for South Korea and Taiwan are on the rise, indicating that recent sell-offs reflect a deterioration in sentiment and a contraction in valuations, rather than a sudden collapse in demand.
This change reflects that the divergence between companies that are able to continue making aggressive AI investments and those that rely heavily on borrowing to finance their expansion is deepening.
HSBC Holdings CEO Georges Elhedery warned that investors and lenders must be more cautious in determining which data center projects are worth financing.
He said, "You must look at the quality of the lease agreement. You must examine the pricing of these contracts. Not all contracts have that superior level that you can strongly support. Some may be more challenging."
