Little-known data centre companies called neocloud firms are now at the centre of a debate over whether AI is a bubble, the BBC reported. The firms run large warehouses full of expensive computers. They lease that computing power to major AI developers such as Anthropic, OpenAI and Meta.
CoreWeave stock has lost a quarter of its value over the past month, according to the BBC. Shares in 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. This past week, Microsoft and Google forecast lower AI spending than Wall Street analysts expected. Shares in several neocloud firms dropped after the forecasts.
Neocloud firms often sign long-term lease contracts with big tech customers. They then borrow money using those contracts and the AI chips they buy as collateral, said analyst Cory Johnson of IPO research firm The Quiet Period. He said lenders sometimes weigh the creditworthiness of CoreWeave's customers, such as Microsoft or Meta, more than that of CoreWeave itself. Johnson said this helps explain how CoreWeave built up $35.1bn in debt.
Analysts disagree on what comes next. Gartner predicts that by 2030, 80% of neocloud firms will "cease independent operations". Forrester expects at least three to be acquired soon as their finances weaken. Elon Musk suggested on social media that more than 200 neoclouds could face death and consolidation. He said the smallest firms were most at risk. Analysts at Yorkville Ives said demand for computing power still exceeds supply.
CoreWeave CEO Mike Intrator has said the market is acting "irrationally". He has also expressed confidence in the company's business model. On Thursday, US Treasury Secretary Scott Bessent told CNBC that neocloud firms are "a small component of the overall ecosystem". Bradley Tusk of Tusk Ventures said the firms would face collateral damage if AI proves to be a bubble and bursts.
Several neocloud firms started out in crypto mining, which uses similar hardware. CoreWeave was founded in 2017 to mine Ethereum. IREN, Core Scientific and Applied Digital also began in crypto. Nebius was known as Yandex NV and was part of Russia's Yandex. It split off and took a new name in 2024.
The sector has faced other recent setbacks. According to the BBC, Microsoft cancelled a deal with British neocloud firm Nscale over power supply problems that could last until 2030. Australia's Firmus has shelved plans for a public share sale. Much now depends on Anthropic and OpenAI. Both are expected to list on the stock market in the coming months.