The latest quarterly reports from two AI cloud computing firms significantly exceeded expectations, sparking a broad rally in the new cloud computing sector and renewing market confidence in the demand for AI infrastructure.

On Wednesday, August 12, CoreWeave, Inc. closed up 19% at $107.73, while NioCorp Developments Ltd. soared 34% to $247.05, both hitting new highs for the recent period.

Both companies' second-quarter performances far surpassed Wall Street forecasts. CoreWeave, Inc. saw its sales backlog climb to $104 billion, and NioCorp Developments Ltd. reported a 454% year-over-year increase in revenue. This upswing quickly spread across the entire AI infrastructure sector: chipmaker Micron Technology rose 4.9%, and cloud computing peer IREN jumped 9.9%. The S&P 500 information technology sector led the gains, pushing the broader market up 0.3%.

Market sentiment thus began to reassess the previously pervasive concerns about overbuilding. At least in the short term, the demand for AI computing power has been proven to be real, backed by contracts and prepayments, and is no longer a mere hypothesis.

Short Squeeze Ignites Rally

This bullish move was fueled by structural factors. According to position data from over 700 fund clients tracked by Hazeltree, CoreWeave, Inc., NioCorp Developments Ltd., and Super Micro Computer were consistently among the top ten most shorted stocks throughout July. This concentration of short positions became the fuel for the rally after the impressive earnings reports were released. NioCorp Developments Ltd., with approximately 24% of its shares sold short, saw its stock price jump from $193 to $247 in a single trading day. CoreWeave, Inc. surged higher in after-hours trading on Tuesday, triggering a chain of buying across the entire new cloud computing sector.

This contrasts sharply with the market backdrop in July, when U.S. chip stocks fell about 20% for the month, and South Korea's KOSPI index dropped 22%, both marking their worst single-month performances since 2008, amid widespread fears of overbuilding and inflated valuations in AI cloud companies.

Order Backlog Confirms Strong Demand

As noted, CoreWeave, Inc.'s financial data is particularly impressive in scale. The company posted second-quarter revenue of $2.58 billion, slightly above the market consensus of $2.56 billion, marking a fifth consecutive quarterly revenue record. Its loss per share was $1.14, better than the expected loss of $1.41. The order book data is even more compelling: the sales backlog rose to $104 billion in the quarter, nearly doubling from November of the previous year. More notably, new customer commitments for the current quarter, not yet reflected in the second-quarter report, have already reached $25 billion. The company also raised its full-year revenue guidance to between $12.4 billion and $13.2 billion, up from the previous range of $12.0 billion to $13.0 billion. Management also revealed that the annualized recurring revenue from its hosted inference business has rapidly surpassed $100 million within months of its launch, starting from about $1 million, and is targeting $250 million by year-end.

NioCorp Developments Ltd. also performed strongly. The company's second-quarter revenue was $582.3 million, a 454% increase year-over-year. Adjusted EBITDA reached $236 million, with a margin of 41%. During the quarter, it closed four large deals with an average size exceeding $1 billion, with customer prepayments covering 50% to 60% of capital expenditure. The winning bid in one computing power auction was 15% higher than the previous highest Blackwell quote. Analysts at Raymond James reiterated their $125 price target after the report, stating that investors are underestimating CoreWeave, Inc.'s potential to develop into a leading hyperscale cloud service provider.

Bull vs. Bear: The Battle Over Capital Returns

The bull case rests on demand consistently outpacing supply, leading to stronger pricing power. Reports indicate that NVIDIA is spearheading a massive infrastructure financing plan, worth approximately $500 billion, focused on AI cloud service providers. Piper Sandler raised its price target for CoreWeave, Inc. to $153, naming it a top pick, while Citizens maintained its $180 price target. Ayako Yoshioka, Senior Investment Strategist at Wealth Enhancement, stated that, at least in the near term, demand is overwhelmingly outpacing supply. Brannin McBee, co-founder and Chief Development Officer of CoreWeave, Inc., noted that the company recently signed contracts for a batch of NVIDIA's A100 chips, released in 2020, at near-full prices, with terms extending to 2029. This indicates the strong residual value of older-generation AI chips. McBee explained that the usage cycle of older GPUs is being extended by the dual drivers of inference and engineering demand, a phenomenon observed across their entire fleet.

On the bear side, DA Davidson maintained a neutral rating and a $100 price target, arguing that CoreWeave, Inc.'s capital cost of approximately 9% is higher than its implied return rate of about 4%, suggesting that "every data center built is continuously destroying value." Bernstein maintained an underperform rating, noting that capital expenditure growth outpaces revenue growth. Angelo Zino, Senior Vice President at CFRA Research, also warned that the potential mismatch between supply and demand remains, given the massive scale of computing power being built, and that a premature burst of the bubble would hit the new cloud computing companies the hardest.