Musk's grim outlook hits neoclouds as debt concerns mount
CRWV•Neocloud shares fell after Elon Musk warned of consolidation and failures, with CoreWeave down 1.6%, Nebius down 4%, IREN down 1.5% and Applied Digital down 2%.
1. Shares decline
Shares of neocloud companies fell on Monday after SpaceX CEO Elon Musk said the sector could face consolidation and failures, adding to concerns about the gap between AI infrastructure investment and revenue. CoreWeave, which the article described as a poster child for concerns over heavy AI spending, fell 1.6%; Nebius Group dropped 4%, IREN lost 1.5% and Applied Digital shed 2%.
2. Debt and profitability concerns
Musk wrote that more than 200 neoclouds would face consolidation and failures, and said SpaceX would not buy any of them. Thomas Hayes of Great Hill Capital said the companies would need another revenue and profit source to finance projects as the cost of capital is too high to make returns attractive. CoreWeave said it continues to see opportunities to finance growth, citing its differentiated technology.
3. Sector risks mount
Earlier this month, Gartner said CoreWeave was among the neoclouds most exposed to increasing leverage and that 80% of the companies could cease independent operations by 2032. CoreWeave, Nebius, Applied Digital and TeraWulf reported quarterly losses over the past year, while IREN had not turned a profit in the past three quarters. CoreWeave, Nebius and IREN shares had fallen more than 30% this month, while short sellers had at least $6 billion in paper profits.
