Musk Predicts 'Guppy-Level Death' for 200+ Neocloud Firms
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Shares of the largest neocloud companies fell on Monday after Elon Musk said more than 200 firms in the sector could collapse. Nebius, CoreWeave and Iren each dropped more than 4% in early premarket trading, then recovered part of the losses and were trading about 2% lower.
Musk, the CEO of SpaceX and Tesla, wrote on X on Sunday: "As of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn't have substantial revenue independent of AI data centers." He added: "That means the 200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many."
SpaceX runs its own data centers and sells computing capacity through them, which makes it a direct competitor to the neoclouds that also rent out compute.
A reply to Palihapitiya
Musk was answering a post by Chamath Palihapitiya, founder of Social Capital, who had laid out his view of the data center buildout. Palihapitiya suggested there will be "a lot of partially stranded compute and compute sitting in inventory in 2027 than is currently forecasted," bought and paid for but "effectively underearning" or "collecting dust." He wrote that 2027 "will be a turbulent year because it will clear out a bunch of wrong/bad bets. It will also be a consolidation year for a few."
A month of losses
Neocloud stocks have taken a hammering over the past month. CoreWeave and Nebius are down more than 30%, and Iren has fallen 40%. The sell-off began earlier this month after the spread on CoreWeave's five-year credit default swaps reached levels generally viewed as a sign of distress, and the yields on its bonds climbed. Investors have grown jittery about companies that borrow heavily to buy expensive Nvidia chips, build data centers and rent out computing power.
Nvidia and the neoclouds respond
Nvidia is an investor in several neoclouds. Last week at its GTC event in Berlin, CEO Jensen Huang told CNBC that demand for neoclouds is "off the charts." "What is missing in the middle is the working capital to fuel that growth," he said, adding that the demand for capital is much greater than its availability and that "that's going to get solved."
Marc Boroditsky, chief revenue officer at Nebius, distanced his company from the worries around CoreWeave: "we're not carrying the kind of debt that they are." He said that if Nebius brought its 2027 capacity online, it would sell out, and that the same dynamic could repeat in 2028.
Iren co-CEO Daniel Roberts also defended demand. "We understand the increased focus from investors, but when we're talking from customers, nothing has changed," he told CNBC last week. "Next year, we are having conversations with customers covering multiples of all the capacity we possibly bring online, and in the last month or so, 2028 is now coming into focus."
Source: CNBC