Neocloud firms face stock decline and rising debt pressures

Stock slump and debt pressures

Shares of neocloud firms, including CoreWeave, Nebius, IREN, and Applied Digital, have dropped by up to 25% over the past month, according to BBC News. The decline follows forecasts from Microsoft and Google that projected lower AI spending than Wall Street had anticipated, spooking investors in the sector.

Debt financing is central to the neocloud business model, as these firms must purchase hardware upfront to fulfill long-term contracts with major tech customers like Microsoft and Meta. CoreWeave alone has accumulated $35.1 billion in debt, with lenders often prioritizing the creditworthiness of its customers over the company itself. However, debt investors are now demanding higher returns from several neocloud firms, reflecting growing concerns about financial stability.

CoreWeave CEO Mike Intrator told BBC News the company remains confident in its model, but rising interest rates and borrowing costs could strain firms that rely on continuous access to capital.

From crypto mining to AI infrastructure

Many neocloud firms, including CoreWeave, IREN, Core Scientific, and Applied Digital, began as crypto mining operations before pivoting to AI infrastructure. CoreWeave, founded in 2017, initially focused on Ethereum mining before shifting to provide computing power for AI workloads. This transition allowed these firms to repurpose existing infrastructure, but their origins in a volatile industry like crypto mining may contribute to investor unease.

Nebius, another neocloud provider, was previously part of Yandex NV, Russia’s equivalent of Google, before spinning off and rebranding in 2024. The company now competes in the global AI infrastructure market, though its ties to a Russian tech giant may add geopolitical risks to its profile.

AI spending slowdowns and power constraints

Neocloud firms have thrived on the surge in AI spending by Big Tech, but recent adjustments to those spending plans are creating financial risks. Microsoft’s cancellation of a deal with UK-based Nscale, citing power supply constraints expected to last until 2030, highlights another challenge: access to reliable energy for data centres. Australia’s Firmus has also delayed its IPO plans, signaling broader caution in the sector.

Despite these headwinds, demand for computing power still outstrips supply, and neocloud firms continue to fill a critical gap that larger data centre providers cannot. Analysts like Cory Johnson of The Quiet Period argue that these firms remain essential to AI development, though their financial health is increasingly tied to the stability of their Big Tech partners.

Investor sentiment and market outlook

Elon Musk recently suggested that rising interest rates could force consolidation or failures among neocloud firms, adding to the sector’s uncertainties. While demand for AI infrastructure remains strong, public backlash against data centres—over concerns about energy consumption and the tangible benefits of AI—may further complicate the outlook.

Bradley Tusk of Tusk Ventures noted that neocloud firms are caught between expensive borrowing and reliance on Big Tech customers who can abruptly adjust their spending. This dynamic leaves little margin for error, especially as lenders grow more risk-averse.

What this means

Lazyfounder analysis — our interpretation, not reported fact.

The struggles of neocloud firms are a warning for founders and operators in AI infrastructure. These companies bet heavily on debt to scale, assuming Big Tech’s AI spending would remain unlimited. The recent stock declines and higher borrowing costs show that model is now under stress. For startups in the space, this means tighter access to capital, higher scrutiny from lenders, and a need to prove sustainable unit economics—not just growth. Operators should also watch power constraints, as energy availability is becoming a hard limit for data centre expansion, particularly in markets like the UK. The delay of Firmus’s IPO signals that public markets may not be a near-term exit option, pushing firms toward private financing or consolidation instead.

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