Neocloud stocks came under renewed pressure on Thursday after Microsoft’s lower-than-expected capital expenditure revived concerns about the pace of artificial intelligence infrastructure expansion and the delivery of data centre capacity.
Shares of CoreWeave, Nebius and Iren fell in pre-market trading after recovering over the previous two sessions.
CoreWeave and Nebius were down about 7%, while Iren lost over 5%.
Microsoft reported $45.2 billion in capital expenditure and finance leases for the quarter, up about 30% from a year earlier but below the average analyst estimate of $50.7 billion, according to StreetAccount.
Alphabet also reported capital expenditure of $51.36 billion in the third quarter, below expectations of $55.09 billion.
Microsoft cites delayed third-party capacity
Microsoft’s spending figures were lower than expected partly because of delays in infrastructure capacity deliveries from third-party providers, highlighting the execution risks facing the AI buildout.
“Capital expenditures were $45.2 billion as some third-party capacity deliveries we expected in Q1 were delayed,” CFO Amy Hood said during the analyst call.
“In Q2, we expect CapEx spend will be over $50 billion. Therefore, for the calendar year, spend should be approximately $170 billion due to the 3P capacity delays noted earlier.”
Microsoft is particularly important to the neocloud sector because it relies on external providers to supplement its own computing infrastructure.
The company signed a nearly $20 billion agreement with Nebius late last year for computing capacity extending into the 2030s.
It is also a major customer of CoreWeave.
Although Microsoft’s spending outlook remains substantial, the timing of capacity deliveries matters for neocloud operators investing heavily in infrastructure ahead of anticipated demand.
Delays can complicate deployment schedules and the conversion of capital expenditure into revenue.
The latest results from Microsoft and Alphabet have added to concerns about the financial sustainability of neocloud companies, whose expansion plans increasingly depend on debt and external financing amid elevated borrowing costs.
Debt concerns intensify scrutiny of neoclouds
CoreWeave has been among the companies facing heightened scrutiny over its borrowing requirements and ability to generate sufficient returns from its AI infrastructure investments.
Earlier this month, the company’s $2.8 billion of bonds issued in April at a coupon of 9.75% traded at 79.5 cents on the dollar, implying a yield of more than 15%, according to data provided by BondCliQ.
The loss-making cloud computing company has approximately $50 billion in debt.
Concerns about the sector’s longer-term viability were reinforced by Gartner research indicating that 80% of neocloud providers could cease independent operations by 2030.
Elon Musk also warned that financing constraints could trigger widespread consolidation among neocloud operators.
“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 in 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.
The concerns have contributed to steep declines in neocloud shares over the past month.
Anthropic’s IPO filing and stronger-than-expected results from South Korean memory chipmaker SK Hynix provided some support to the stocks this week, as investors weighed evidence of continued computing demand against financing risks.
Despite their recent rebound, CoreWeave shares remain down about 26% over the last month, while Nebius has lost 23% and Iren has declined 30%.
Oppenheimer defends CoreWeave’s balance sheet
Not all analysts believe the selloff accurately reflects the long-term prospects of neocloud companies.
Oppenheimer reiterated its Outperform rating on CoreWeave this week, arguing that the decline in its unsecured bonds has created a misleading picture of the company’s financial risks.
“CoreWeave’s unsecured bonds sold off on rising rates/GPU obsolescence fears,” analyst Param Singh wrote.
“While CoreWeave has more value as a going concern, we look at a few different scenarios why the credit markets may be adding unnecessary pressure on the equity valuation.”
Oppenheimer’s analysis estimates approximately $83 billion in recoverable assets against roughly $42 billion in pro forma debt and about $37 billion in other liabilities.
“We see a full recovery for unsecured debt,” Singh wrote, arguing that the useful life of servers could be longer than accounting-based depreciation schedules suggest.
That could mean the company’s balance sheet understates the value of its infrastructure relative to its actual utilisation.
The firm also believes CoreWeave has a competitive advantage through its software stack, which could help it differentiate itself from more commoditised GPU cloud providers.
“Long-term winners will build full software stacks addressing inference and enterprise needs, optimizing revenue and cost per MW for superior ROI,” Singh wrote.
Nebius attracts bullish calls despite the selloff
Nebius has also received positive analyst commentary despite its recent share-price weakness.
French outlet L’Informé reported on Monday that Nebius had raised 250 million euros, or about $279.3 million, for its data centre near Lille in northern France, according to Stocktwits and Yahoo Finance.
A Seeking Alpha analyst recently upgraded Nebius to Buy from Hold, arguing that the company had been unfairly sold off alongside more heavily leveraged competitors.
The analyst pointed to Nebius’s net debt of approximately $2.15 billion, compared with CoreWeave’s roughly $30 billion in net debt, as evidence of a stronger balance sheet relative to other scaled neocloud operators.
“In August, I moved Nebius from a Sell to a Hold because valuation was still stretched after the run, and the market has since taken care of that concern. The stock closed at $158.74 on Friday, around 45% below its June high of $299.86, and in my view, it is being priced alongside operators whose balance sheets look nothing like its own. Today, I’m upgrading Nebius to a Buy, and would recommend investors look at the pullback as a buying opportunity,” the analyst said.
The contrasting assessments highlight the central debate surrounding neocloud stocks: whether the growing demand for AI computing will generate sufficient revenue and cash flow to justify the sector’s enormous infrastructure commitments, or whether financing costs and capacity delays will accelerate consolidation.
The post Why Nebius, CoreWeave and IREN stocks are falling after Microsoft’s capex miss appeared first on Invezz
