My Last Warning on These AI Data Center Stocks. (3 to Buy, 2 You'll Regret)

Their goal is to supply the hyperscalers, but could that goal fall flat? Or is there more to the story ahead? Joining us today is marketbeat analyst Jeffrey Neil Johnson with a look at this AI data center space for rent story. There are many different companies and stock tickers that are working to get into the AI game by providing data center space for rent. Kind of like the landlords of compute space. And many of these stocks have really been struggling throughout the summer. They've lost a lot of ground. Jeffrey, so let's start there. Why have we seen some of these stocks pull back from the the big highs that they saw at the start of the summer and really back into the spring? >> There's a multitude of reasons, you know. Um the ones that are tied to crypto, of course, you have the decline of the cryptocurrency market that's been falling down. You have uh increased energy consumption and increased energy prices which drag down these companies. And then you have just the AI bubble in general that's kind of creating a question mark around them because you're looking at infrastructure that's being built out for like the next 10 years. And so if there's a question on whether the AI market is a bubble and it's going to collapse, building for the next 10 years becomes like a question of risk. >> Yeah, the risk is the big question that every investor has about these names. And also there are so many names entering this race. The other big question is which ones are worth investing in and which ones are going to be traps that are really ones you want to avoid right now. And that is exactly what Jeffrey has done for us today. He's looking at three names in this AI data center space for rent story that he suggests as a buy right now and two names that he would warn to stay away from. And we're going to break into why that is for all five of these different names. Before we get into the first stock on your list, Jeffrey, I want to talk a little bit more about this concept and maybe the risk that exists simply because of hyperscalers. And we just had MAG7 earnings. We had lots of hyperscaler reports. And so many of these massive companies, yes, they're the ones that are going to be renting this space and are contracting to rent the space that these companies are building out. They're also building their own spaces. And I think that that's where the question has come up in the market for some investors are will these hyperscalers build their own space or is there enough demand that these companies that are working to build space for rent will also see business in the future. >> Today what we're going to talk about is we're going to talk about the different strategies of these companies because you have pure play companies that are starting from scratch doing this. You have crypto companies that are rotating over from this and then you have these hyperscalers that are also adding their compute power into the pile. The question could be is it oversaturated and right now maybe it is oversaturated but we still have so many use cases for AI that that are being developed and so many other situations that are coming online. Just because these hyperscalers are building out AI space doesn't mean that they're going to utilize it all. And it also doesn't mean that they're going to be able to like make money off of it all. Right? They could spend so much money making a current environment and 24 hours from now a new model comes out and the entire environment that they have to create changes. So I think that it becomes um really just another obstacle in this race. >> Yeah. that differentiator of how much money they're spending versus can they actually make money off of what they're investing right now is going to show up in this list today of the ones that you are looking at buying and the ones you're looking at avoiding. That's kind of the key issue that we're going to dive into. I do want to point out no matter which of these companies wins and which one loses, they're all spending the money right now. They are all building out these facilities and that means that the companies that are helping to build them, they are winning right now. Those infrastructure companies are still getting paid by all of these names. And so if you want to look at those infrastructure plays, the ones that are really benefiting right now from this AI buildout story, make sure to scan the QR code or click the link in the description to get this premium article for free right now on marketbeat.com. It's the 10 best AI infrastructure stocks that you can look at in the market right now. Again, these aren't long-term plays. These are companies that if you add to your portfolio today, they are seeing this payoff right now in the next 12 to 18 months because they are working to build out all of these data centers that the companies we're talking about are investing in. So these are also names you want to look at, but that's not the video that we are doing today, Jeffrey. Today we are talking about these data center builders. And so let's get to the first company that is on your buy list. This is not the one to avoid. We're going to get to those two later. This is your first buy. Which one is that? The company that we're talking about that's the number one gold standard right now is Coreweave and that's ticker symbol CRWV. They're not a minor that pivoted. They're not some other company that's grabbing on to this um to this headline and trying to tag along. They were built from the ground up to house hyperscalers and to do this data center AI um thesis. And so they are kind of the gold standard. uh when you look at the compute for higher sector uh they are the ones that you look at as the strategy from the ground floor up that's been designed around being the cloud compute provider. >> Yeah, Cororee is a name that really hit the market a little over a year ago and people were extremely excited about this stock. Uh there was a ton of early interest in this name. It skyrocketed right away, but it has not done so well the last three months, Jeffrey. And that's going to be a similar story with most of the names that we're looking at today. These kind of companies had a ton of excitement early on in the year and have kind of continued to have a downward trend recently. Why with Core Wee in particular, do you think we're seeing that downtrend? >> Well, I think they they're still in the process of building things out. So, they're spending a lot of money. They're not making a lot of money right now. we're transitioning from a situation where we're training AA models to where we're using them in inference and there's just a lull in the industry in general. And so that's naturally going to transfer over to probably one of the high-risk assets which would be your infrastructure side. And so I think that over the past 3 months, you know, and I'm not going to blame it all on the AI infrastructure lull, but a lot of it has been just the lull in AI infrastructure. And as the AI thesis is starting to spin back up, so will these companies. It seems analysts agree with that point, Jeffrey, because there are certainly some analysts who are moving this stock quite a bit higher. But I do want to look at some of the the most recent analyst forecasts on this one. Uh because there have been a couple of downgrades, not major downgrades, it's just where the price targets are moving slightly lower for this name. Anything with the analyst coverage that has you concerned or do you think as an investor looking at what the analysts have to say, would this make Korea a good buy right now? The downgrades a lot has to do with uh one the AI thesis but then two a lot of these companies are running on debt right they're building out huge infrastructures they're taking in a lot of debt and with the the current rate environment that's going on it kind of creates a risky situation where they have so much debt to service and we have you know a possible rate hike coming up we have all kinds of things that add risk to the thesis and that also kind of hold the stock down a little bit >> yeah I think that's such an important point the core reeves the first one we're talking about but I believe all five of these companies still pre-revenue they're spending a ton of money right now and that shows up in their earnings report this one has a new earnings report coming up next week but their latest one not great news for the company uh but I think all of theirs kind of look like this because they are spending so much money right now is there any evidence from Corey right now with uh contracts that they have or future contracts coming in that they're going to be able to make up for all of that spend they're doing right now is that investment going to pay off is the real question. >> I think in the long term it will because as AI compute grows, as the need for AI compute grows, right, these are these are long-term investments. It takes a lot of time to get liquid cooling installed. It takes a lot of time to get these huge, you know, uh behind the meter and in front of the meter power line systems installed. It's just the staggering amount of money that it takes to bring these um systems online. their net debt is now $ 32.9 billion, right? And so that creates a situation where when you have this uncertainty where people are questioning the AI pieces, you know, is it going to make money? Are we going to be able to grow and build off of this technology, it becomes kind of a wait and see situation on building all of these giant buildings out a and accessing all of this power. >> Yeah, I think that that concept applies to all of them. It's a wait and see to see is it going to work out for these companies. What makes Core Weeb on your buy list instead of your one to avoid list right now, Jeffrey? What sets it apart? >> With them being uh as pure of a stock in this sector as you can get, they are definitely the kind of the canary in the coal mine to watch. You want to watch them because if they start struggling, everybody else is going to struggle, too. >> All right, let's move on to the second name on your buy list in this space. And this is a name that a lot of our viewers have been interested in quite a bit for a little over a year now. But still a lot of volatility in this name, >> right? So the next one we're going to talk about is Nibius Group and it's NBIS. And I kind of see them as kind of like the European sleeper agent stock because you know they used to be Yandex which was the quintessentially like the Google of Russia and when they split off they created Nibius. This is one that's transitioning from a different kind of tech over to becoming an AI cloud provider. >> Yeah. And you can see with their books, uh, compared to the other names we're looking at and even compared to Coreeave, they seem to be doing a little bit better. Let's look at their recent earnings. I think this is the only one that's really in the green on earnings. Uh, and so let's talk about what that means for their execution or maybe how far along they are in this process. >> Well, you know, I think if you look at their their last earnings, they reported I think like a 95% profit margin. I mean, they're almost a pure profit company. So, as they grow, if they can keep that profit margin locked down, as they scale up, it it's just going to it's going to go all straight to the bottom line. That all that money is going to go straight to the bottom line. >> Well, that bottom line is getting pretty good right now because of some recent deals that they have. Jeffrey, let's talk about that. Some of the the latest deals that they've announced and also again, this one seems to be showing up in the performance of their stock, too, because compared to the other names on this list, Nebia's stock performance is really strong as well. So Meta has a deal with them that could trigger up to a $27 billion capital infusion as they build out, right? But all of those deals, I think, are performative. So as they continue to grow and Meta continues to buy out their compute, the money from those deals will come into fruition. But then you also kind of have to look at where Meta is selling compute as well. So are they going to be buying this compute from Nibius and then turning around and selling it back out is the question. When you asked earlier as to whether or not these hyperscalers are going to take over some of these pure play small cloud providers, Nibius becomes one of the answers to that question because if Meta is buying from Nidius and then turning around and selling that compute back out, it creates a situation where maybe in the future Meta consumes Nidius or they get an even tighter deal together somehow and continue to grow this infrastructure project out. Yeah, that's a really interesting dynamic for sure. And it's it's so new, it's unknown yet. I think that's one piece in the market. The market doesn't like unknowns. So, it's new and we're not quite sure how this business model is going to work out long term, what the demand really is. So, that's an interesting question. Uh, but so far, Nebia's performance does seem the strongest of the ones on the list. It's only down slightly over the last 3 months versus the other stocks we're looking at, down over 30% in the last 3 months. So, it's not seen as strong of a pullback, but that doesn't mean there isn't volatility. There's been plenty of volatility in this name. I will say this is one that the very first stock I added on to my Bridget Spies watch list. This is my paper trading watch list on MarketBeat where I add one stock per video that we talk about on this YouTube channel and then track to see how it moves over time from when we talked about it on our channel. If you haven't checked it out yet, make sure to scan the QR code or click the link in the description. It's just marketbeat.com/bid. And this one was the first one I added back in last November in November of 2025. It's up 130ome percent since then. So, it's been one of the really strong performing stocks on my watch list even through the volatility. Clearly, it's had higher highs than where it's at today and I'm still up that much on this stock. So, it's a name that has a lot of interest and and the stock price performance is doing really well. What are your thoughts about when this volatility might level out? Will we ever find that strong and steady number for where the value in this company lies >> across the sector? I think that the volatility just revolves around the hype train situation. You know, you say that like Nibbius is not as bad off as some of the other ones on this list in the short term, but also on July 23rd, they got a $2 billion equity injection from Nvidia. So, they're they're at the front of the hype train right now, right? Even though they got that capital injection that moved them to the front of the hype train, this seems to be a situation where the rising tide lifts all boats where on bad days they all move down and on good days they all move up. And it almost seems like they stagger their major news releases in a way that the that the hype train continues to lift all of the boats up at the same time because of the um the different contracts that they're getting and the way that they're rolling things out. But I think it really kind of comes down to the one that's doing the best is the one that just got the most recent deal. >> Yeah, those headlines are always a big deal for helping to move a stock price. Well, Nebius is another great pick on your buy list. Jeffrey, let's get on to that last stock on your list. Uh it's a buy in this space. I know you have two more that are ones to avoid in this kind of sector right now. So, I'm excited to hear those just as much as your last buy list. But what is that last name you were looking at as a buy in this sector? And so we're going to talk about Iris Energy, which is the only crossover that has made it from the Bitcoin mining space to the AI space successfully. Iron Energy is the only one so far who has executed that pivot flawlessly. >> Interesting. I think that there's some viewers out there who would have some other names that come to mind in the Bitcoin pivot to AI space. But why do you say that, Jeffrey? What qualifies to you as a flawless execution compared to the many other stocks that are doing something similar? the transition from um Bitcoin mining to like high-owered computing, it's a very expensive transition. Most Bitcoin miners are air cooled. You know, HTC systems are liquid cooled. Iron started off as uh the primary like ESG pick because they are run on 100% renewable energy. You have that big feather in their pocket there. Then as they transitioned over, you know, they don't have the bills from the energy side of things. And as they transitioned over from Bitcoin mining to the liquid cooled HPC cloud provider, they have been able to keep some of their Bitcoin mining going, they've transitioned it over evenly and smoothly. You know, we talked about there are other names on this list that that could do the same thing that these that this company is doing, but from a standpoint of like strategy and fundamental execution, they're the ones to look at as the gold standard. So look at what they've done and then look at what other companies are doing and if it's a similar kind of thing, you might be able to catch another company, you know, that's coming up and out because there are a lot of these Bitcoin miners that are pivoting because the money's just not there. There's just no really not a lot of money in Bitcoin mining anymore. Well, I think one thing that to think about when we talk about these Bitcoin miners or former Bitcoin miners that are switching over to these, you know, AI compute power space for rent company model or business models. You might think as an investor that they're just taking already existing buildings and transforming them over. And that's true in many cases, but for companies like Iron, they are uh adding a lot of new facilities that are, you know, from the ground up starting as AI compute power space. The new facilities they're adding are never with Bitcoin in mind. there always new facilities being added with compute power in mind. So is that part of that that execution that's working well for Irene because they have a lot of new facilities coming online as well. >> So they started getting their hands on 10 years ago they started getting their hands on these power purchase agreements that are so coveted right now. An AI company applies to get a power purchase agreement from a local power company. It's going to be 7 to 10 years before they're going to get that approved and be able to execute on that agreement. 10 years ago, the cryptocurrency mining industry went through the same exact thing. So now, as cryptocurrency mining is dying and and is kind of becoming like a nobody really wants to put their hands on it kind of situation, these companies are getting their power purchase agreement. So they're not going to take those power purchase agreements and build brand new crypto mining centers. So they're sitting on this highly lucrative almost like gold that they can turn around and all they have to do is build the building and more than likely in in nine chances out of 10 a hyperscaler or some other company is going to come in and fill these buildings up. >> Energy is the real play here. That's interesting and definitely sets uh companies like Iron apart. Let's talk a little bit more about the chart action before we move on to your stocks to avoid list that'll get to some similar companies to Iron. But looking at their chart, this one has had a really rough last few months. It's pulled back significantly. It's now trading well below where analysts see the value of this company being. Uh what do you think about the recent price action and why we're seeing such a pullback right now? And is this pullback a buy opportunity for you? I think this pullback is a buy opportunity specifically because um you know recently they acquired Morantis which is a company that allows them to use their HPC compute power to generate specific environments so that all of their HPC can kind of be distributed to all of their clients using this new Moriranis software. and they have taken the step to purchase command and control software specifically for AI by purchasing this Morannis company. >> All right, a definite differentiator for iron. Let's move on to your do not buy list. These are the stocks in this kind of space that you are saying are ones you are personally going to be avoiding. Let's get to that first name on your list of names you want to avoid in this data center for rent space. this stock specifically, but also when you look at other stocks in this space, if they if they fit this mold, this is what you're going to want to avoid. And that's Applied Digital and their APLD. And I call them like the cost of capital illusion because they're always coming out and they're saying, "We've got this huge deal and we've got this huge deal." They have this massive like $ 36 billion backlog, right? In my eyes, that backlog is an illusion because I don't think that applied digital could ever get to the place where they could service that backlog efficiently. >> Interesting. So, what makes them different than what iron is doing? Because oftent times when we hear from viewers, they ask about iron and applied digital very very similarly is very similar concepts and I think a lot of investors kind of look at them in the same way. What makes them different? >> Well, iron has more money in in the bank first off. Iron has better execution. They're already doing this and they have um contracts that they're already starting to pull off of. Right. The problem with Applied Digital is Applied Digital is about $10 billion away from being able to start servicing their contracts and the entire company's market cap is $8.6 billion. So, in order to finish building out just to where they can start servicing this contract, they're going to have to either take on a massive amount of debt or they're going to have to dilute shareholders down to near zero in order to pay for the $10 billion that they've got to put up front before they can even start taking money in. And that's why I call it the cost of capital illusion because they come out and they say, "Hey, we've got 36 billion,4 billion, $50 billion worth of backlog." It doesn't really matter how big of a backlog you have. If it takes your shareholders down to zero before you can start servicing it. >> Interesting. Yeah. Looking at the latest earnings report, you can kind of see that cash burn showing up. I know there was maybe a couple of quarters ago when Applied Digital had a really positive earnings report that had a big spike in the stock price because people were excited about what they saw there. Uh why has that story changed so much right now? I think that the big spike was because of um their pivot and then also some kind of creative accounting in their earnings report that made them look like they were doing a little bit better than they actually were. So then I think when the next earnings report came out um and and that kind of like backtracked the sentiment a little bit which of course started kind of selling off of which started kind of the selling off of the stock a little bit. So, it's sounding like the key differentiators for you on whether a company in this space is a buy or a not buy is whether they have the cash to support all the buildout and investing that they're doing. Is that apply to the second do not buy stock you have as well? >> Yeah, it actually does. Um, Hive is the next one and it's Hive Digital. Kind of like where Applied Digital has taken in all these backlogs and made a big um spin out of that and they don't have the money to really pull that backlog off. Hive Digital's done something very similar where they were, you know, Hive blockchain or just Hive and they just slapped digital on the end of it as a buzzword so that they could then say that they're going to be doing AI and all this other stuff. But the simple fact of the matter is is they have so much infrastructure buildout that they're going to have to do in order to be able to start servicing any kind of an AI workload that they're they're still way off. and they're they're one of those companies that's kind of using like a buzzword bingo to try to get on that hype train to drag their stock up. But the problem is is that, you know, after a while, buzzword bingo kind of wears off and it becomes execution for shareholders. And I think in this space, they're getting just like with the AI space, it's becoming a situation of you can talk all day long, but we want to see the execution and we want to see the money. And I just don't think Hive is doing that right now. >> Yeah. money and execution are two key points for investors to look at. One thing that is similar with this name and applied digital and really all of the names that you talked about here is the volatility right now. You look at the 52- week ranges on all of these names and it's wild ranges. Um, Hive is a perfect example of that from 175 roughly as a low and we're trading much closer to that low right now all the way up to 780 and that was back in October when it had a huge surge. Uh, and so all of these names have that level of volatility. Does the volatility itself provide a risk to you as an investor or do you think it's really those fundamentals of do they have the cash to support what they're doing or that revenue coming in to help support the more buildout that they're doing? >> You know, I'm a fundamental guy. Um, you can talk all day long, but if the money's not there or if you're trying to, you know, stick a square peg in a round hole, it's just not going to work for me. on on Hive's side, they just issued uh something like $130 million worth of zero interest convertible debt. They're trying to put their money where the mouth is, but they don't have the money to do that. It's a dilution trap that just kicks the can further down the road because whether they pay this money back or whether it gets converted over into stock down the road, it's going to dilute shareholders that are that are putting their money in right now. Hive is doing this just to fund to get to where the first three players on our list already are today. >> Yeah, there's clearly so much spend happening right now. And don't forget that a lot of this spend is going directly into those companies building out this AI infrastructure. So, if you want to take a look at that list, too, the 10 best names to buy in this AI infrastructure story, the companies directly benefiting from all of the spend these companies are doing to build out these data centers. Make sure to scan that QR code or click the link in the description. You don't want to miss this list because this is that list that's really going to pay off in that next 12 to 18month window. Now Jeffrey, I do want to talk really quick about the timeline for all of these names. Uh whether it's the three on your buy list or these two on your drop list, what kind of timeline do you see for these companies and this whole sector really being profitable and actually having some positive earnings on their books? >> As long as AI continues to hold, you're talking like a fairly short window before they start seeing profitability. and you're seeing like a 10year thesis on a lot of these companies. So once they actually get traction and start making money, I feel like they have a five to say 7 to 10 year window of growth ahead of them because as AI grows, they're going to continue to grow out as well. And then you'll see this really fun scenario where they start eating each other and combining and merging with each other. And that'll be the next segment of this sector that you'll want to see and start wanting to watch for which one of these companies are going to try to take the next one out. >> Well, there are plenty of companies out there where that uh companies eating each other or combining are definite possibilities and there are a long list of other companies we could have talked about within this story today. If you want to hear uh just a list of some other companies that are making that Bitcoin miner to AI data center space switch right now, check out this list of 10 of them. Some are good, some are bad, but they are all looking to make that switch.