AI worries weigh on ABB shares despite record orders

By John Revill

ZURICH, Oct 20 (Reuters) - ABB dropped nearly 6% on Tuesday as market nervousness about the sustainability of investments in artificial intelligence weighed on the Swiss engineering company, which is a major supplier to data centres.

Record new orders and an increase in its full-year sales guidance failed to appease institutional buy-side investors who were looking for more, analysts said, as AI-linked stocks fell more broadly.

On South Korea's stock market, which has become one of the clearest measures of AI sentiment, traders sold heavily on Tuesday as concern mounted over rising costs.

While European semiconductor stocks also fell, ABB shares fell more than peers. The stock, which reached its highest level to date of 89.14 Swiss francs ($108.13) in June, dropped to 70.72 Swiss francs on the Swiss exchange after the results.

"Operationally ABB remains strong, but waning AI enthusiasm is creating headwinds," said Marco Estermann, an analyst at Luzerner Kantonalbank.

"Ahead of the third quarter there was a risk that even results exceeding expectations would not be enough to support the share price."

During its third quarter, ABB said its revenue rose 14% to $9.70 billion, slightly below analysts' forecasts of $9.74 billion in a company-gathered consensus.

Operational earnings before interest, tax and amortisation jumped 24% to $2.03 billion in the three months to the end of September, slightly ahead of analyst forecasts for $2.0 billion.

Another analyst said fears had increased about the number of companies that will survive in the artificial intelligence sector, concerns that drove selling in US cloud company CoreWeave last week.

Andreas Lipkow, chief analyst at broker CMC Markets, said concerns were increasing about high valuations and the financing of the AI boom, with questions raised whether the massive investments will pay off.

Research firm Gartner Inc expects that by 2030, 80% of neocloud providers will cease independent operations because they will fail to generate enough revenue to meet their debts building and managing data centres.

"There is a feeling of insecurity and uncertainty in the market that even good numbers may not be good enough," said ZKB analyst Florian Sager.

"People are worrying about the huge debts that the neoclouds are taking on to build their projects. Investors question whether these companies get the revenues they need in the future to survive,” he said.

ABB however remained bullish on the future of data centres and CEO Morten Wierod said demand for its services had not slowed.

Orders surged 40% to $12 billion in the three months ended September 30, with data centres the biggest driver. The company raised its full-year sales outlook and also announced a pending $495 million investment in a joint venture with Mitsubishi Electric.

"We see a continued acceleration in the market when we're looking at the demand for the build-out of data centres," Wierod told reporters.

"Data centres will be a growth market for many years," he added, saying the value of ABB data centre orders for the third quarter had been the highest yet.

($1 = 0.8244 Swiss francs)

(Reporting by John Revill, additional reporting by Oliver HirtEditing by Linda Pasquini, Jochelle Mendonca and Barbara Lewis)