Shares of neocloud companies CoreWeave and Nebius fell nearly 5% in extended trading Wednesday after Microsoft reported lower-than-expected capital expenditures (capex) for the quarter. The decline followed Microsoft’s disclosure that its quarterly capex and finance leases totaled $45.2 billion, up 30% year-over-year but below the $50.7 billion average analyst estimate.
CoreWeave, a leading neocloud provider, has seen its shares drop almost 40% in October before recovering slightly from a low on October 23. The Roundhill Neocloud ETF, which tracks major players like CoreWeave, Nebius, and IREN, has fallen 24% over the past month. The selloff reflects broader concerns about rising borrowing costs, mounting debt levels, and whether AI spending will yield sufficient returns.
Market Reaction and Industry Pressures
Microsoft’s capex shortfall triggered immediate declines among neocloud stocks, with Nebius and IREN also sliding 3%. The company’s earnings report attributed the gap to timing differences between receiving goods and payments and a lower mix of finance leases, despite a 48% year-over-year increase in Azure revenue. Analysts had expected Microsoft’s capex to reach $55.09 billion, but the actual figure fell short.
The neocloud industry, which provides cloud computing services to AI customers, has faced growing scrutiny over the past month. Elon Musk, whose companies rent AI infrastructure to firms like Anthropic and Google, warned on X (formerly Twitter) that more than 200 neocloud companies could collapse, stating that debt markets have “almost entirely shut off access to money” for firms reliant solely on AI data centers. Musk added that SpaceX would not acquire any neocloud companies.
In contrast, Nvidia CEO Jensen Huang offered a more optimistic view, telling CNBC that demand for neocloud services remains strong. Earlier this month, Huang stated that neocloud demand is “off the charts”, though he did not address the debt concerns directly.
Debt and Financing Concerns Intensify
The neocloud sector has signed multibillion-dollar deals with hyperscalers, including:
- Nebius’ $17 billion+ deal with Microsoft (September 2024)
- A potential $27 billion, five-year contract with Meta (March 2025)
However, investors have grown wary of the industry’s debt levels, particularly as interest rates rise. CoreWeave’s shares have rebounded slightly from their October lows, but the Roundhill Neocloud ETF remains down 24% over the past month.
Treasury Secretary Scott Bessent downplayed concerns in a CNBC interview Wednesday, stating that neocloud debt is “not problematic at all” because the sector represents a small component of the broader ecosystem. Bessent noted that financing is still available and pointed to Meta’s decision to finance with equity as evidence of market resilience.
Long-Term Projections and Industry Consolidation
A Gartner report shared with CNBC predicts that 80% of neocloud companies could fail by 2030, citing unsustainable growth models and overreliance on AI infrastructure. The report suggests that only the most financially stable players will survive, with weaker firms facing acquisition or collapse.
Despite the warnings, some industry leaders remain bullish. Nvidia’s Huang has continued to back major neocloud providers, while Bessent emphasized that deals are still being completed. However, the short-term volatility and rising debt costs have raised questions about the sector’s sustainability.