AI Needs More Data Centers. So Why Are Their Stocks Getting Crushed?

Before the bell on Monday, October 5, TeraWulf (WULF) announced it had doubled the contracted power at its Muskie campus in Kentucky. Power is the scarcest resource in the AI business right now, so shareholders should be thrilled. By midmorning, the stock was down about 5%.

It didn’t get any better. By Wednesday, TeraWulf was down another 4%.

When a stock keeps falling on good news, the market’s trying to tell you something. Here, I think it’s saying a bigger pipeline doesn’t count for much until investors know what it’ll cost to finish.

Just look at how far these stocks have fallen from their summer highs, most of which hit between late May and late June. As of Thursday’s close, Boost Run (BRUN) is down about 71%. Keel (KEEL) is off 57%, Cipher Digital (CIFR) 55%, Applied Digital (APLD) 53%, TeraWulf 50%, and Core Scientific (CORZ) has lost about half its value.

And don’t let the ETF you see on TV fool you. On Thursday, while companies like Boost Run, Huyt (HUT), and Riot Platforms (RIOT) were down more than 10%, the Global X Data Center & Digital Infrastructure ETF (DTCR) slipped just 1.9%. But about 45% of that fund sits in Digital Realty (DLR), Equinix (EQIX), American Tower (AMT) and Crown Castle (CCI). Those are established landlords already collecting rent, so it’s a lousy read on the builders.

The CoinShares Bitcoin Mining and Digital Power ETF (WGMI) gets a lot closer, with TeraWulf, IREN Ltd. (IREN), and Cipher Digital (CIFR) inside. Just know you’re buying a pile of companies that are still involved, to varying degrees, in bitcoin mining.

Quick Detour Back to Our AI Stack Series

Think of a turnkey developer as the guy who builds the house, hooks up the power, and installs the air conditioning. The tenant moves in with the furniture, meaning the computers. A neocloud rents out those computers and sometimes builds its own place too. The lines blur, but they share the same problem. They spend a fortune long before the first rent check shows up.

That was a lot easier when money was practically free, or at least cheaper than it is today. The Fed raised rates a quarter point in September, and while traders are betting it sits tight in October, nobody’s counting on cheap or free money coming back anytime soon.

You don’t have to wait for the next Fed meeting to feel it, either. When borrowing gets pricier, new loans cost more, and a dollar of rent you won’t see until 2028 is worth less today. If I’m going to wait years to get paid, I want a better price going in. So does everybody else.

So, What Are These Guys Actually Paying?

Much of the short-term construction money works like an adjustable-rate mortgage. The lender charges a benchmark called SOFR plus a fixed markup, and when the benchmark moves, so does the bill. Applied Digital (APLD) took out a $300 million bridge loan in May at SOFR plus 2.75 points, then swapped it out for a $1.59 billion bond at a fixed 7%. That’s the smart move when you can make it. Lock the rate and remove Fed risk.

Not every developer gets that luxury, and no two deals are priced alike. The tenant, the collateral, and how fast power comes online all move the number. But the basic math is simple. On $1 billion of floating-rate debt, a quarter-point bump adds $2.5 million a year in interest. A full point adds $10 million. Same building, same customer, just a bigger check to the bank before shareholders see a dime.

And the Fed’s only half the story. Lenders get nervous when everyone shows up asking for billions at once. In July, Bloomberg reported CoreWeave (CRWV) was negotiating a $2.6 billion loan at 5.5 points over its benchmark, up to 1.25 points more than first discussed, and at a discount to boot.

CoreWeave’s a neocloud, not a landlord. But it’s also Applied Digital’s tenant. So when it gets harder for the guy paying rent to borrow money, investors start asking how solid that rent check really is. A guarantee from a big, investment-grade company helps, especially if everyone knows exactly what the backstop covers.

Then there’s the calendar. Even a great tenant can’t move into an unfinished building.

TeraWulf’s Muskie expansion takes contracted power to a full gigawatt, but the first 500 megawatts doesn’t start ramping until 2028. The second half is penciled in for 2029, pending Kentucky regulators and the local utility’s construction schedule. Based on the stock, investors aren’t keen to bet that costs and timelines will hold steady that long. Again, this is perception. As sentiment shifts, investors quickly become more trusting of management-guided timelines and costs.

Politics Can Stretch It Out Even More

In September, supervisors in Loudoun County, Virginia, the heart of data center country, voted to pause new data center applications for a year while they rework the rules. Fights over power bills, water, and where these buildings belong can push back opening day. And the interest meter keeps running while the politicians hash it out.

If a developer has to sell stock to cover a funding gap, a falling share price makes it sting more. They have to issue more shares to raise the same money, which shrinks everyone else’s slice. That’s how a new lease can be great news and a financing headache on the same day.

Here’s the good part, though. All of this gets a lot easier once the power’s on and a customer’s paying rent. Then we can look at the next building and ask a simple question. Can they pay for it at a cost that still leaves shareholders a nice return?

Until good news stops getting sold, these stocks are going to be tough to own. That doesn’t mean they can’t snap back hard. Stocks like WULF, APLD, and IREN have plenty of short sellers, and a small shift in mood could squeeze them into covering.

I’m an optimist here. AI needs somewhere to plug in, and these developers are building the outlets. They belong on your screen. But before you mistake a short-term trade for an investment, wait for one of them to post good news, rally on it, and hold those gains into the close.

In Part Two, we’ll dig into what could bring buyers back, from cheaper financing to new leases and buildings that finally start collecting rent.

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At the time of publication, Byrne had no positions in any securities mentioned.