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Elon Musk said that more than 200 neocloud companies could collapse, sending shares in those companies whipsawing. Nebius, Iren and CoreWeave all fell in early trading, adding pressure to a sector already facing investor concerns about debt-fueled expansion and whether the large AI infrastructure buildout will generate returns. The stocks all rebounded later in the day. "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," Musk, CEO of SpaceX and Tesla, said on a post on X on Sunday. "That means the 200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many," he added. Musk's SpaceX operates its own data centers through which it sells computing capacity. SpaceX is a direct competitor to the neoclouds which also rent compute. Musk was replying to a post on X by Chamath Palihapitiya, the founder of Social Capital, who laid out his views on the state of the data center buildout. He suggested that there will be "a lot of partially stranded compute and compute sitting in inventory in 2027 than is currently forecasted," which will be "bought and paid for but effectively underearning (below total cost of capital) or collecting dust." "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," Palihapitiya said. Neocloud stocks have taken a hammering over the past month, with CoreWeave and Nebius down more than 30% while Iren has tanked 40%. The sell-off started earlier this month after the spread on CoreWeave's five-year credit default swaps hit levels generally viewed as signs of distress. The yields on CoreWeave's bonds also climbed. Investors have grown jittery over companies that are borrowing heavily to fund the purchase of expensive Nvidia chips, build data centers, and rent out computing power. Nvidia, neoclouds defend demand Nvidia, an investor in several neoclouds, looked to shore up the sector last week at its GTC event in Berlin, Germany. In an interview with CNBC, Nvidia CEO Jensen Huang said the demand for neoclouds is "off the charts." "What is missing in the middle is the working capital to fuel that growth… because there's just so much demand across so many sectors of AI, there's a scarcity of capital," Huang said. "The demand of the capital is much greater than the availability of the capital. That's going to get solved," he added. Marc Boroditsky, chief revenue officer at Nebius, distanced his company from concerns surrounding CoreWeave, saying "we're not carrying the kind of debt that they are," in an interview with CNBC. Boroditsky said that if the AI infrastructure company brought its 2027 capacity online, it would sell out. And there could be "the same type of dynamic" 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. The demand is still there," Roberts 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. But the demand is there," he added.
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