Musk's warning hits neocloud stocks as debt concerns mount
QQQ•Neocloud shares fell in premarket trading after Elon Musk warned of industry consolidation and failures, adding to concerns about debt-funded AI infrastructure spending. CoreWeave dropped 4.5%, Nebius fell 3.4% and IREN lost 3.3%.
1. Shares fall after warning
Neocloud shares declined in premarket trading on Monday after Elon Musk said the sector could face significant consolidation and failures. CoreWeave fell 4.5%, Nebius Group dropped 3.4% and IREN lost 3.3%; Applied Digital and TeraWulf shed more than 2% each, while Core Scientific fell 1.7%.
2. Debt concerns mount
Musk said in a social media post that more than 200 neoclouds would face failures and consolidation, and that SpaceX would not buy any of them. 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.
3. Profitability under scrutiny
Some brokerages expect AI spending to exceed $1 trillion next year, while investors weigh debt dependence, rapid depreciation of AI assets and expectations for more Federal Reserve rate hikes. Bonds of Nebius maturing in 2034 and CoreWeave maturing in 2033 hit record lows. CoreWeave, Nebius, Applied Digital and TeraWulf reported quarterly losses over the past year, while IREN has not turned a profit in the past three quarters.
