In the rapid rise of artificial intelligence, a new kind of company has emerged: the neocloud, which rents out warehouses of costly computers to the largest AI developers and finances them with borrowed money secured by promises from powerful customers. CoreWeave, the largest of these, carries $35.1bn in debt, and as its shares and those of its peers have dropped sharply, a familiar question has returned to markets: whether the enthusiasm for AI has outrun its foundations. Many of these firms were born in cryptocurrency mining, where the same machines and buildings once served a different drea
The obscure 'neocloud' firms renting AI computing power are now at the centre of bubble fears
Debt backed by customer contracts, and the customers may be changing their plans
Mark
Why are these companies suddenly in the spotlight?
Mimi
Their shares have dropped about a quarter in a month, and lenders are asking for higher returns. CoreWeave alone carries $35.1bn in debt.
Mark
How does a firm borrow that much?
Mimi
It signs long leases with customers like Microsoft or Meta, then borrows against those contracts and the chips it buys. Johnson says lenders may care more about the customer's credit than the firm's own.
Luke
That's one analyst's reading of lender behavior, though. The piece doesn't show lenders saying so.
Mark
And the failure forecasts?
Mimi
Gartner says 80% will cease independent operations by 2030. Musk says over 200 could see consolidation.
Luke
Those are predictions, not outcomes. Musk's is a social media post, and the piece doesn't say how he counted 200 firms.
Mark
Is there a case on the other side?
Mimi
Yorkville Ives says demand still exceeds supply. Intrator calls the market irrational. Bessent says neoclouds are a small part of the ecosystem.
Luke
Notably, Intrator and Bessent both have reasons to sound calm. What we don't know is whether Nscale and Firmus are isolated cases or the start of a pattern.
Il Polso
- CoreWeave's $35.1bn debt load has investors asking whether borrowed money can keep pace with a fast-moving industry.
- Neocloud shares fell about a quarter in a single month, sending tremors through a sector that had been riding high.
- Debt lenders are demanding higher returns, making the capital these firms need to keep growing more expensive by the day.
- Microsoft and Google forecast less AI spending than expected, and the sector's fortunes now hang on the next move of its biggest customers.
- Executives insist the market is irrational and demand still outstrips supply, while analysts warn that hundreds of smaller firms may not survive.
In the rapid rise of artificial intelligence, a new kind of company has emerged: the neocloud, which rents out warehouses of costly computers to the largest AI developers and finances them with borrowed money secured by promises from powerful customers. CoreWeave, the largest of these, carries $35.1bn in debt, and as its shares and those of its peers have dropped sharply, a familiar question has returned to markets: whether the enthusiasm for AI has outrun its foundations. Many of these firms were born in cryptocurrency mining, where the same machines and buildings once served a different dream, and their fate now rests on the spending decisions of giants such as Microsoft and Google. Whether they become durable pillars of the new economy or fragments swept into consolidation will depend on choices still being made.
CoreWeave, the largest of the so-called neocloud companies, has built up $35.1bn in debt. The figure, cited by IPO research analyst Cory Johnson, sits at the heart of a growing argument about whether the AI boom has become a bubble.
Neoclouds own large warehouses of expensive computers and lease that capacity to AI developers such as Anthropic, OpenAI and Meta. Because the hardware must be bought up front, these firms borrow against long-term contracts with big customers. Johnson notes that lenders often trust the customers more than the neoclouds themselves, which are far smaller than the giants they serve.
Investors have grown uneasy. CoreWeave's stock has lost a quarter of its value in a month, and debt investors are demanding higher returns. CoreWeave's chief executive, Mike Intrator, argues the market is acting irrationally and points to the major companies lining up for his services.
Many of these firms began in crypto mining, which used similar infrastructure and left them well placed when AI took off after 2022. Their fortunes now depend on a few enormous spenders. When Microsoft and Google forecast less AI spending than analysts expected, several neocloud shares tumbled.
The warnings are growing. Elon Musk suggested that many smaller neoclouds may not survive, and Gartner predicts that 80% will stop operating independently by 2030. Still, analysts at Yorkville Ives insist demand for computing power still exceeds supply. For now, the sector waits to see whether its biggest customers keep spending.
CoreWeave, the largest of the so-called neocloud companies, has piled up $35.1bn (£26.3bn) in debt. That figure, cited by IPO research analyst Cory Johnson of The Quiet Period, sits at the center of a debate that has moved from a niche corner of Silicon Valley to the wider market.
Neoclouds run large warehouses full of expensive computers and lease that capacity to AI developers such as Anthropic, OpenAI and Meta. CoreWeave and Nebius are the best-known names. Others include IREN and Applied Digital. Their business model is to sign long-term lease contracts with big tech customers who need computing power quickly. The firms then borrow against those contracts, and against the AI chips they buy, because the hardware has to be paid for up front. Johnson's view is that lenders often weigh the creditworthiness of customers like Microsoft or Meta more heavily than that of CoreWeave itself, which is a fraction of the size of the giants it serves.
Investors have grown uneasy. CoreWeave's stock has lost a quarter of its value over the past month. Nebius, IREN and Applied Digital have fallen by about as much, or more. Debt investors are also demanding higher returns from several firms in the sector. CoreWeave's chief executive, Mike Intrator, has said the market is acting irrationally and has voiced confidence in the business model, noting that some of the world's most consequential companies are lining up for its infrastructure and other AI services. On Thursday, Treasury Secretary Scott Bessent told CNBC that neoclouds are a small component of the overall ecosystem.
Many of these firms began in crypto mining. CoreWeave was founded in 2017 to mine Ethereum, and IREN, Core Scientific and Applied Digital also started there. Mining uses physical infrastructure similar to what AI requires, which left them well placed when ChatGPT arrived in 2022 and AI took off. Nebius is the outlier: it was formerly Yandex NV, part of Russia's equivalent of Google, before it split off and took its new name in 2024.
Their fortunes now depend on the spending of major AI developers and the hyperscalers, even larger data centre operators that are often key customers. Melissa Otto of S&P Global's Visible Alpha Research called it an arms race, with an enormous amount of spending injected into the system. Forrester's Charlie Dai said the trade-off is greater financial risk if customers change course. This past week, when Microsoft and Google forecast less AI spending than Wall Street analysts had projected, several neocloud shares tumbled. Much also rides on Anthropic and OpenAI, both expected to sell shares to the public in the coming months. Bradley Tusk of Tusk Ventures said that if AI proves a bubble and bursts, neoclouds will face collateral damage.
The sector also needs to keep borrowing, which becomes more expensive as interest rates rise. Elon Musk suggested in a social media post that more than 200 neoclouds could see "guppy-level death and consolidation," with the smallest most vulnerable. Some will make it through, he wrote, but not many. Gartner predicts that by 2030, 80% of neocloud firms will cease independent operations, while Forrester expects at least three to be acquired soon as finances get shaky.
There are counterweights. Analysts at Yorkville Ives say demand for computing power still exceeds supply, and that neoclouds fill a gap larger data centre companies cannot. But there are warning signs. Microsoft recently cancelled a deal with British neocloud Nscale amid power supply problems that could last through 2030. Australia's Firmus has shelved plans for a public share sale. All of this comes amid public backlash against data centres and questions about how much AI adds to worker productivity. "There's reason to worry," Johnson said.
What to watch next: the spending plans of Microsoft and Google, and the timing of the Anthropic and OpenAI share sales.
Citazioni salienti
There is just an enormous amount of spending getting injected into the system. It's an arms race.— Melissa Otto, S&P Global Visible Alpha Research
Some will make it through, but not many.— Elon Musk, social media post
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