(Bloomberg) — Money is still pouring in from the race to build out artificial intelligence infrastructure, but traders are suddenly getting more selective about who the beneficiaries will be.
On one end of the spectrum are companies like CoreWeave Inc., the money-losing provider of computing services that is swimming in debt. Its shares plunged 26% last week, marking its worst weekly showing since its debut earlier this year, following on the prior week’s 22% decline. The stock had risen more than 400% from an April low through June and remains up nearly 90% since its March initial public offering.
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Shares fell 2.3% on Monday.
On the other end is Micron Technology Inc., whose profits are projected to more than double this year amid soaring demand for its memory chips used in AI computing. The shares hit a record high last week and are up 13% in November and more than 190% for the year. The stock rose 4.6% on Monday.
“The market is re-evaluating things right now and the companies that had been flying high, that don’t have a lot of cash flow, have really been getting hit,” said Joe Tigay, portfolio manager of the Rational Equity Armor Fund, which owns stakes in numerous AI stocks.
The shift is reverberating throughout the AI trade, which has led US stocks higher for most of the year as investors piled in with little discrimination amid accelerating investments by technology giants. Spending from four of them — Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Meta Platforms Inc. — is projected to rise 34% to roughly $440 billion over the next 12 months, according to data compiled by Bloomberg.
The difference now is that quality matters. Stocks with strong balance sheets are in, while the shares of more speculative names with heavier debt loads are out.
Take Oracle Corp. The legacy provider of database software has rallied this year amid rapid growth in its cloud-computing division. The stock soared 36% on Sept. 10 after projecting that unit would reach $144 billion in annual revenue by the fiscal year that ends in May 2030, up from $18 billion this year.
Since then, Oracle shares have tumbled 33% amid unease about the costs required to fulfill those obligations, which are increasingly being funded by debt. Free cash flow is expected to be negative $9.7 billion this year after falling into the red last year for the first time since 1990. The deficit is projected to expand in the subsequent two fiscal years, reaching negative $24.3 billion in fiscal 2028.
There are “businesses that are committing to significant spend that are not as well funded from a cash flow perspective that may need to take on significant debt in order to fund their future investment,” said Brian Levitt, chief global market strategist at Invesco. “That works until you get some type of disruption in the credit market. And I think the market’s becoming a bit more and more mindful of that.”
The scrutiny comes as investors are losing tolerance for massive AI investments that don’t have clear road maps to bigger payoffs. Meta has fallen nearly 20% since its third-quarter earnings report last month disappointed amid aggressive spending to expand computing capacity and hire AI talent.
Meanwhile, Alphabet’s shares have continued to climb after results revealed sales growth in its Google Cloud business was better than expected, even as it raised its capital spending forecast for this year. Alphabet’s nearly 60% advance in the second half of 2025 dwarfs gains in the Nasdaq 100 and place it among the 10 best performers in the benchmark.
It remains to be seen whether this is a temporary retrenchment or the start of a bigger unwind. The selling concentrated in companies with weaker balance sheets is reminiscent of the dot-com bubble, according to Gene Goldman, chief investment officer at Cetera, which owns many key AI stocks.
“It was really the unprofitable, the bad names, the ones that were just not strong all sold off more indiscriminately as the markets kind of realized who were going to be the key winners,” Goldman said.
Still, AI services remain in high demand, and there are no signs that spending is going to slow any time soon. Of course, investors are still waiting to hear from Nvidia Corp., the AI trade’s most important bellwether. The chipmaker’s third-quarter earnings are due on Wednesday afternoon.
Rational Equity Armor Fund’s Tigay remains confident that the outlook for the AI trade is bright considering how much money is still flowing into infrastructure investments.
“I don’t think there are any fundamental changes in the trade, but the market is reassessing and taking another look,” Tigay said. “That’s healthy.”
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–With assistance from David Watkins and Brandon Harden.
(Updates to market open.)
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