AI Bubble About to Burst? Top Tech Investor Warns Most Neocloud Players Could Go to Zero

Technology stocks face renewed pressure as investors reassess artificial intelligence spending, data-center restrictions and valuations following the U.S. midterm elections. However, Wall Street experts still see opportunities in mega-cap technology, software, semiconductors and cybersecurity.

U.S. stocks lost about $3.2 trillion in market value in a single session after Democrats’ sweeping midterm victory triggered a technology-led selloff, the Financial Times reported Friday, citing FactSet data.

The Nasdaq 100 plunged 6.4%, while the S&P 500 dropped 4.4%, marking its worst session since last year’s “liberation day” selloff. The broader S&P Composite 1500 suffered its largest single-day market-value loss since 2000.

AI Chip Stocks Take a Beating

Semiconductor stocks led the decline as investors questioned the pace of AI infrastructure spending.

NVIDIA Corp. (NASDAQ:NVDA) plunged 9.3%, erasing more than $400 billion in market value.

Qualcomm Inc. (NASDAQ:QCOM) fell 9.5%, while Broadcom Inc. (NASDAQ:AVGO) dropped 10%. Micron Technology Inc. (NASDAQ:MU) sank 17%.

Memory stocks also suffered. Sandisk Corp. (NASDAQ:SNDK) tumbled 22%, while Western Digital Corp. (NASDAQ:WDC) lost 17%.

Investors fear that growing political opposition to data-center construction could delay AI infrastructure projects and weaken demand for chips.

However, analysts see a sharp divide between established technology giants and smaller AI infrastructure providers.

Larry Adam Sees Buying Opportunities in Big Tech

Raymond James Chief Investment Officer Larry Adam told CNBC Thursday that the AI investment cycle remains intact.

He expects data-center projects already underway to support construction activity for at least another year.

Adam said some technology, AI and semiconductor stocks trade at roughly 30% discounts to historical valuations. Meanwhile, earnings expectations remain strong.

He favors mega-cap technology companies because their diversified businesses offer greater stability.

Adam also sees opportunities in semiconductor infrastructure stocks following the valuation reset.

Moreover, he believes slower data-center spending could benefit hyperscalers by improving cash flow and increasing the value of existing capacity.

He remains bullish on cybersecurity as AI adoption raises the importance of protecting data.

Richard Clode Warns of Forced Selling

Janus Henderson technology portfolio manager Richard Clode described the market decline as widespread and painful.

Clode told CNBC Thursday that forced selling contributed to the downturn after months of volatility and losses among long-short funds.

The weakness spread beyond AI infrastructure stocks to software companies and mega-cap technology names.

Clode described the broader retreat as a “buyer’s strike.”

He also warned that election-related uncertainty could delay data-center projects, particularly in Texas.

However, he believes developers will focus on building projects responsibly rather than abandoning construction altogether.

Greater cooperation with local communities could eventually create a more sustainable environment for data-center development.

Data-Center Restrictions Could Benefit Big Tech

CNBC’s MacKenzie Sigalos said Friday that tighter data-center regulations could strengthen established technology companies.

Citing Needham’s analysis, she explained that stricter rules could raise barriers to entry for smaller competitors.

Meanwhile, companies with existing infrastructure could benefit from higher capacity values and lower capital spending.

That could improve free cash flow at Microsoft Corp. (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon.com Inc. (NASDAQ:AMZN) and Meta Platforms Inc. (NASDAQ:META).

Sigalos also identified Apple Inc. (NASDAQ:AAPL) as a potentially defensive technology investment.

Unlike major AI infrastructure developers, Apple’s core hardware business requires less data-center spending.

NVIDIA, however, could face more immediate pressure if construction delays reduce demand for AI chips.

Dan Niles Warns Neoclouds Face Bigger Risks

Niles Investment Management founder Dan Niles told CNBC Friday that political and permitting restrictions could reshape data-center development.

He sees the greatest risks among neocloud providers, including CoreWeave Inc. (NASDAQ:CRWV) and Nebius Group N.V. (NASDAQ:NBIS).

These companies rely heavily on outside financing and aggressive infrastructure expansion.

Niles issued a stark warning about the future of neocloud providers, predicting that most could see their valuations fall to zero when the AI infrastructure boom eventually unravels.

He pointed to excessive data-center construction, heavy debt, negative cash flow and the lack of diversified businesses as major risks. Niles compared the potential fallout to previous infrastructure booms that ended in overbuilding and financial collapse.

He said, “The neoclouds have leveraged balance sheet, massive negative cash flows, no other businesses, you know. And when this ultimately breaks—I don’t think this is actually the top, we’ll find out—but they’re going to go to zero, most of them, right?”

By contrast, Microsoft, Alphabet, Amazon and Meta generate cash from established businesses.

Those revenue streams could help them withstand slower AI infrastructure growth.

Still, Niles cautioned that hyperscalers could also suffer if neocloud capacity becomes unavailable.

Microsoft and Google depend partly on outside providers to support their cloud expansion.

Dan Ives Sees AI Spending Peak Earlier

Yorkville Ives analyst Dan Ives told CNBC Friday that the election results have changed his expectations for data-center construction.

His revised outlook assumes roughly 10% fewer data centers, with the reduction potentially reaching 15% to 20%.

Ives now expects Big Tech capital-spending growth to peak in 2027, earlier than his previous 2028-2029 forecast.

However, he believes slower construction could benefit hyperscalers by reducing spending pressure and increasing the value of existing infrastructure.

Ives now favors software stocks over semiconductors.

He expects AI adoption to continue expanding even if infrastructure development takes longer.

Meanwhile, he sees greater challenges for OpenAI and Anthropic, which need additional computing capacity.

Ives also expects fierce competition among neocloud providers. However, he identified Nebius as one of the better-positioned companies.

He believes the market is misreading the AI investment cycle. In his view, spending could stretch over a longer period rather than disappear.

Price Action

Microsoft shares fell 0.66% to $532.39, while Alphabet gained 1.34% to $285.52 during premarket trading Friday.

Meta rose 1.31% to $613, while Amazon slipped 0.57% to $258.73.

Meanwhile, CoreWeave jumped 7.54% to $46.95, and Nebius climbed 8% to $130, according to Benzinga Pro data.

Photo via Shutterstock