Despite concerns that surfaced this week over neocloud provider CoreWeave’s debt levels, the AI business remains “resilient,” say Bank of America analysts led by Vivek Arya. They cite a key metric to prove this thesis: utilization.
The boom in AI capital spending has often been compared to the development of fiber optics and its subsequent collapse in the early 2000s, when companies laid massive amounts of cable in the hope that demand would follow supply. When this demand took longer than expected to materialize, several companies went bankrupt.
What’s different about AI, BofA analysts say, are the usage rates. Unlike the early days of fiber optics, “deployed AI infrastructure is operating at near 100% utilization,” the analysts write, while GPU rental rates have increased from 12% to 37% since the start of the year, “a sign of scarcity, not glut.”
According to analysts, the shift from traditional computing to generative AI models drove the first wave of demand, with the second wave driven by the shift to reasoning models and the third driven by demand for agentic capabilities.
There are some risks, analysts say: potential credit wipeout at a neocloud company like CoreWeave, increased rate market pressures, and power or permitting delays. Still, Arya and her team remain optimistic.
“Rising rates, geopolitics, data center backlash and stress from some sub-IG neoclouds have revived dot-com comparisons, and SOX has already endured several 20%+ bear markets this year,” the analysts wrote. “We think the risk is taken into account.”
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