Neocloud shares fall after Musk warns of failures and consolidation

Shares in neocloud companies fell on October 26 after SpaceX CEO Elon Musk warned that many would fail or combine, adding to investor concerns about the gap between spending on AI infrastructure and the revenue it generates.

Nebius Group dropped 4%, Applied Digital lost 2%, CoreWeave declined 1.6% and IREN fell 1.5%. CoreWeave, Nebius and IREN have each declined more than 30% this month, while investors betting against them have accumulated at least $6 billion in unrealized gains.

Musk said in a social media post that only a small number of more than 200 neocloud companies would survive the shakeout. He also ruled out SpaceX acquiring any of them.

Thomas Hayes, chairman at Great Hill Capital in New York, said the companies would need other revenue and profit sources to fund their projects because financing costs were too high to produce attractive returns. A CoreWeave spokesperson said the company still saw opportunities to fund its expansion, citing its technology among other strengths.

Research firm Gartner said earlier in October that CoreWeave ranked as the most exposed to rising leverage among roughly 100 neocloud companies. Gartner estimated that 80% could lose their status as independent businesses by 2032.

Nebius bonds due in 2034 and CoreWeave bonds due in 2033 have reached record lows amid the concerns. CoreWeave, Nebius, Applied Digital and TeraWulf have posted quarterly losses over the past year; IREN has been unprofitable for the past three quarters.