Neocloud firms face scrutiny as AI bubble fears grow

A group of little-known data centre operators is drawing intense investor attention, and much of it is unwelcome, according to BBC Technology. Firms including CoreWeave and Nebius run vast facilities filled with costly computers and rent that capacity to major AI developers such as Anthropic, OpenAI and Meta.

Their finances are now among Silicon Valley's most argued-over topics. Gartner analysts expect 80% of these companies, known as neocloud firms, to stop operating independently by 2030. Forrester researchers anticipate that at least three will be taken over soon as their finances weaken.

On Thursday, Treasury Secretary Scott Bessent sought to calm nerves on CNBC, describing neocloud firms as a minor and external piece of the wider ecosystem.

These companies typically fund themselves by agreeing long-term leases with large technology customers that need computing power quickly. They then borrow against those contracts and the AI chips they buy, said Cory Johnson of IPO research outfit The Quiet Period. He noted that debt is widespread in the sector because the hardware must be paid for in advance.

CoreWeave leads the field but is far smaller than several of the giants it serves. Johnson argued that lenders may weigh the credit standing of customers such as Microsoft or Meta more heavily than the company's own, which he said helps explain how CoreWeave built up $35.1bn in debt.

CoreWeave's shares have fallen by about a quarter over the past month. Stock in Nebius, IREN and Applied Digital has dropped by similar amounts or more in the same window. Bond investors also look uneasy and are pushing for higher returns from several companies in the group.

CoreWeave chief executive Mike Intrator has described the market's reaction as irrational and voiced confidence in his company's model.

Many of these firms began in crypto mining, which uses physical infrastructure similar to that needed for AI development. IREN, Core Scientific and Applied Digital all started there and were well placed when ChatGPT arrived in 2022. Nebius is different: it was Yandex NV, part of Russia's equivalent of Google, before separating and renaming itself in 2024.

Their fortunes now rest on major AI developers and hyperscalers, the larger data centre operators that often rank among their key customers. Melissa Otto of S&P Global's Visible Alpha Research described an enormous volume of spending flowing into the system and called it an arms race. Forrester's Charlie Dai said the model carries greater financial risk when conditions shift, including any changes big customers make to their spending plans.