RUM Group shares have extended their sharp sell-off this month, tumbling to their lowest level since late July. The stock touched $5.86, a 45% drop from its August peak, as persistent worries about a potential AI bubble continue to pressure the entire sector.
The company, best known for its conservative-friendly video platform Rumble, has pivoted aggressively into the neocloud space through its Quake AI division. This unit aims to supply data center infrastructure to hyperscalers and AI research labs. The recent acquisition of Northern Data, a German AI cloud and high-performance computing firm, underscores this strategic shift. RUM Group initially purchased an 85% stake in June for $767 million and has since increased its ownership to 98%, signaling its intent to fully absorb the company.
Early signs of success include a six-year, $13.7 billion contract with Anthropic, the creator of the Claude AI model. Management hopes to secure additional deals from both large enterprises and smaller AI startups. However, the neocloud industry faces mounting skepticism. Research firm Gartner has warned that many players will likely need to record significant asset impairments in the coming years.
Prominent investor Michael Burry has also voiced concerns, arguing that companies are overstating the useful life of their GPUs. He contends that the optimal depreciation period should be two to three years, not the six-plus years many firms assume. This discrepancy could lead to substantial write-downs if the hardware becomes obsolete sooner than expected.
RUM Group also confronts the same financial hurdles as other neocloud operators like CoreWeave and Nebius. Building out data centers requires enormous capital, forcing companies to raise funds through debt or equity issuance. CoreWeave's debt has ballooned to nearly $30 billion, while IREN's has surpassed $7 billion. Meanwhile, the cost of critical components—memory, servers, and GPUs—continues to climb, squeezing margins further.
Adding to the pressure, short interest in RUM Group stands at 11%, reflecting bearish sentiment among traders who anticipate further declines. The broader AI trade has become increasingly volatile, with investors questioning whether the massive spending on AI infrastructure will generate commensurate returns.
Despite the sell-off, RUM Group's underlying business is still growing. In the second quarter, revenue jumped 40% year-over-year to $40.4 million. With the Northern Data acquisition, the company projects third-quarter revenue of $93 million. Yet, these fundamentals have done little to stem the tide of selling.
Technical Analysis Points to More Downside
The daily chart reveals a persistent downtrend, with the stock sliding from $10.53 in August to its current level. It has broken below the key support at $6.98, its September 11 low, and is now trading beneath the 50-day moving average. The Relative Strength Index (RSI) has entered oversold territory at 30, but that alone rarely signals a reversal in a strong downtrend.
Given the technical setup, the next major support level appears to be the psychological $5 mark. A break below that could open the door to further losses, potentially targeting $4.65, the stock's March low. With AI jitters persisting and the neocloud business model under scrutiny, RUM Group shares may remain under pressure in the near term.
This article is for informational purposes only and does not constitute financial advice.
