A group of data center companies known as neoclouds is facing pressure from investors. Their shares have fallen sharply over the past month.
These firms run large warehouses filled with costly computers. They lease that computing power to AI developers such as Anthropic, OpenAI and Meta.
CoreWeave and Nebius are two of the best known names in the group. Both are now at the center of a debate over the health of the AI economy.
Shares Fall as Debt Concerns Grow
CoreWeave stock has lost about a quarter of its value over the past month. Shares in Nebius, IREN and Applied Digital have fallen by about the same amount or more.
Debt investors are also demanding higher returns from several firms in the sector. That makes borrowing more expensive.
Neocloud firms often sign long-term lease deals with large tech customers. They then borrow money using those contracts and their AI chips as collateral, according to analyst Cory Johnson of The Quiet Period.
Johnson said lenders sometimes focus more on the credit of CoreWeave’s customers, such as Microsoft and Meta, than on CoreWeave itself. “This helps explain how CoreWeave accumulated $35.1bn in debt,” he said.
CoreWeave CEO Mike Intrator has said the market is acting “irrationally.” He has expressed confidence in the company’s business model.
Analysts at Gartner predict that by 2030, 80% of neocloud firms will “cease independent operations.” Forrester expects at least three of them to be acquired soon “as finances get shaky.”
From Crypto Mining to AI
Several neocloud firms began in crypto mining. Crypto miners use some of the same physical equipment needed to build AI.
CoreWeave was founded in 2017 to mine Ethereum. IREN, Core Scientific and Applied Digital also started as crypto miners.
That equipment put them in a good position when AI demand took off in 2022 after OpenAI launched ChatGPT. Nebius is different, as it was once Yandex NV before splitting off and changing its name in 2024.
Forrester analyst Charlie Dai said the neocloud model carries “greater financial risk” if big tech customers change their spending plans.
This past week, Microsoft and Google forecast less AI spending than Wall Street expected. Shares in several neocloud firms dropped after the news.
Elon Musk said in a recent social media post that more than 200 neoclouds could “see guppy-level death and consolidation.” He added, “Some will make it through, but not many.”
Analysts at Yorkville Ives said demand for computing power still exceeds supply. They said neoclouds fill a gap that larger data center firms cannot.
Other recent events have added to concerns. Microsoft cancelled a deal with British firm Nscale over power supply issues, and Australia’s Firmus shelved plans to go public.
On Thursday, Treasury Secretary Scott Bessent tried to calm worries. He told CNBC that neocloud firms are “a small component of the overall ecosystem.”
