Why CleanSpark Plunged Nearly 10% Today

As a leading cryptocurrency miner turned artificial intelligence infrastructure play, CleanSpark (NASDAQ: CLSK) is one company investors are clearly watching closely, both as a barometer of the exuberance within the AI trade but also investor willingness to bet on independent compute providers in a sector that's clearly dominated by a handful of companies with deep pockets and the ability to scale.

Monday's 9.3% decline was partially offset by a positive after-hours move. However, concerns have grown about the company's ongoing transition to becoming a pure-play compute provider, as CleanSpark's business model shifts to providing excess GPU capacity to firms in increasingly short supply of said compute.

Let's dive into the key factors driving CleanSpark lower today, and whether this is a trend that could continue from here.

Why is it raining on CleanSpark's parade?

Source: Getty Images.

It's worth noting that CleanSpark's share price is still up over the past 12 months, even after a series of recent declines that have spooked many investors.

News that this weekend's winter storm affecting much of the continental United States caused power outages in Tennessee (where CleanSpark happens to have a heavy footprint), appears to be one key factor driving today's decline.

However, the broader issue most market participants appear to be keying on is a recent deal between Nvidia (NASDAQ: NVDA) and CoreWeave (NASDAQ: CRWV). Nvidia will reportedly be investing $2 billion in the AI infrastructure company, suggesting to some investors that the stranglehold CoreWeave has on much of the AI infrastructure market will be emboldened by this move.

I'm of the view that the AI market will ultimately be large enough to create opportunities for smaller companies like CleanSpark to compete. However, if market dominance becomes concentrated within this sub-sector investors are watching closely, and pricing power becomes compressed for former crypto miners such as CleanSpark, the whole investing narrative around such companies could be in trouble. Today at least, that appears to be the growing narrative.

We'll have to see how CleanSpark reacts to this news and whether the company puts forward any explicit guidance on its growth plans moving forward. But in the absence of anything to cheer, investors are souring on this space for the time being.

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.