The companies that lease computing power to OpenAI, Anthropic and Meta have lost about a quarter of their market value in a month, and their debt loads are now the loudest argument in Silicon Valley.
The big picture: Neocloud firms such as CoreWeave, Nebius, IREN and Applied Digital run warehouses of expensive computers and lease them to major AI developers. They finance the hardware up front by borrowing against long-term customer contracts and the chips themselves, per analyst Cory Johnson of The Quiet Period.
- "This helps explain how CoreWeave accumulated $35.1bn in debt," Johnson told the BBC, noting that lenders sometimes weigh the creditworthiness of customers like Microsoft or Meta more heavily than the borrower's own.
By the numbers: CoreWeave stock has lost a quarter of its value over the past month, and Nebius, IREN and Applied Digital have shed roughly as much or more. Gartner analysts predict 80% of neocloud firms will cease independent operations by 2030, and Forrester expects at least three to be acquired soon as finances get shaky.
The backstory: Several of these firms grew out of crypto mining, which uses similar infrastructure. CoreWeave was founded in 2017 to mine Ethereum, and IREN, Core Scientific and Applied Digital also began there. Nebius is the former Yandex NV, spun out of Russia's answer to Google in 2024.
Between the lines: Shares in several neoclouds tumbled this past week after Microsoft and Google forecast less AI spending than Wall Street analysts expected. The model concentrates risk in a handful of customers: "the trade-off is greater financial risk in the face of change," said Forrester analyst Charlie Dai.
The other side: CoreWeave chief executive Mike Intrator says the market is acting irrationally and defends the business model, pointing to the queue of major companies waiting for its infrastructure. Treasury Secretary Scott Bessent told CNBC on Thursday the sector is a small component of the overall ecosystem.
- "There is just an enormous amount of spending getting injected into the system," said Melissa Otto of S&P Global's Visible Alpha Research. "It's an arms race."
Why it matters: Anthropic and OpenAI are both expected to sell shares to the public within months, and the debt sitting under their compute suppliers is the part of the AI trade that gets repriced first if Big Tech trims a capex plan.
