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Why is RUM Group stock falling? Key reasons behind the sell-off

RUM Group stock has been in a strong freefall this month, reaching its lowest level since July 31 this year. It fell to $5.86, down by 45% from its highest point in August, and technicals suggest that it has more downside as AI jitters persist. 

RUM Group stock has fallen as AI bubble risks remain

RUM Group is a company known for Rumble, the YouTube competitor that is popular among conservatives. Recently, the firm has ventured into the fast-growing neocloud industry. Its AI business is through Quake AI, which is aiming to become a big provider of data center solutions to hyperscalers and other AI labs. 

The company recently acquired Northern Data, a German AI cloud and high-performance computing company. It initially spent $767 million to acquire an 85% stake in the company in June, and recently increased it to 98%. Its goal is to own the whole company.

The transition has had some earlier success, with the company signing a six-year $13.7 billion deal with Anthropic, the creator of Claude. It now hopes to receive more deals from both large companies and smaller AI labs. 

The challenge, however, is that there have been concerns about the neocloud industry, with Gartner warning that companies in the industry will need to announce major impairments in the coming years. 

Michael Burry has warned that these companies were exaggerating their depreciation cycle. Ideally, he believes that the optimum usage of these GPUs should be two to three years, while they see it as over six years. 

RUM Group also faces the challenges that other neocloud companies like CoreWeave and Nebius are facing. For example, rolling out data centers is a highly expensive process, meaning that it will need to raise cash, either through debt or equity. CoreWeave’s debt has jumped to nearly $30 billion, while IREN’s has soared to over $7 billion. 

Additionally, the cost of all items in the data center industry, including memory, servers, and GPUs has continued rising this year. There are also fears that the AI bubble will burst this year, which explains why the company has a short interest of 11%. 

RUM Group’s business is expected to continue growing, driven by its Rumble and Quake. Its last earnings report showed that its revenue jumped by 40% in the second quarter to $40.4 million. With the Northern Data buyout, the company announced that its Q3 revenue will be $93 billion.

RUM Group shares technical analysis

RUM Group stock

RUM Group stock chart | Source: TradingView

The daily chart shows that the RUM Group shares have been in a strong bearish trend in the past few weeks. It dropped from $10.53 in August to the current $5.86. 

The stock has moved below the Ultimate Support level of the Murrey Math Lines tool. It has dropped below the key support level of $6.98, its lowest level on September 11. 

The stock has dropped below the 50-day moving average, and is along the lower side of the Bollinger Bands. At the same time, the Relative Strength Index (RSI) has dropped to the oversold level of 30.

Therefore, the stock will likely continue falling, potentially to the psychological level of $5. A drop below that level will point to more downside, potentially to $4.65, its lowest level in March.

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