These firms you've never heard of are feeding fears the AI bubble could burst

ByLily Jamali North America Technology correspondent, Reporting fromSan Francisco.

Key points

• "This helps explain how CoreWeave accumulated $35.1bn (£26.3bn) in debt, " he remarked.
• Names like CoreWeave and Nebius are familiar to the tech set in San Francisco and Silicon Valley.
• Their infrastructure left them well-positioned when AI exploded in 2022 with the introduction of OpenAI's ChatGPT.
• One outlier is Nebius, which was known as Yandex NV when it was part of Russia's version of Google before splitting off and changing its name in 2024.
• "There is just an enormous amount of spending getting injected into the system, " remarked Melissa Otto, head of Visible Alpha Research at S&P Global.

In practice, a once-obscure corner of the AI ecosystem finds itself in the spotlight – and investors don't all like what they see.

These data centre firms, known as neocloud firms, run substantial warehouses packed with expensive computers. It they lease to major AI developers like Anthropic, OpenAI and Meta.

They're now the subject of one of Silicon Valley's most heated debates.

Plenty of question whether neocloud firms are financially sound and what their recent stumbles tell us concerning the state of the AI economy.

While Forrester's experts expect at least three of them to be imminently acquired "as finances get shaky", analysts at Gartner predict by 2030, 80% of neocloud firms will "cease independent operations".

On Thursday, Treasury Secretary Scott Bessent tried to downplay recent reservations concerning neocloud firms, calling them "a small component of the overall ecosystem, external" on CNBC.

Neocloud firms often finance themselves by signing long-term lease contracts with major tech customers who need quick access to computing power.

Firms can then borrow funds using those contracts – plus the AI chips they purchase – as collateral, explained analyst Cory Johnson of "The Quiet Period" IPO research outfit.

He remarked debt is common throughout neocloud firms since the hardware has to be paid for up front.

Take the industry leader: CoreWeave. It's a fraction of the size of some of the Major Tech businesses it serves.

But Johnson believes lenders sometimes consider the creditworthiness of CoreWeave's customers, like Microsoft or Meta, more than the company's when they lend.

"This helps explain how CoreWeave accumulated $35.1bn (£26.3bn) in debt, " he remarked. Some jittery investors appear to be having second thoughts.

CoreWeave stock has lost a quarter of its value over the past month, and it's not alone.

Shares in other neocloud firms like Nebius, IREN, and Applied Digital have all shed regarding that much if not more during the same period.

Debt investors additionally appear spooked, and are demanding ever-higher returns from a number of firms in the sector.

According to CoreWeave's CEO Mike Intrator has, the market is acting "irrationally" and has expressed confidence in its business model. Some of the world's most consequential firms are queuing up for CoreWeave's infrastructure and other AI services.

Meanwhile, a number of neocloud firms have their roots in the volatile crypto mining industry, produced of firms that generate cryptocurrencies, like Bitcoin.

Crypto miners employ some of the same kind of physical infrastructure that is employed to develop AI. CoreWeave was founded in 2017 with a focus on mining Ethereum. IREN, Core Scientific and Applied Digital additionally kicked off in crypto mining.

Now, the success of these firms hinges on the fate of major AI developers and hyperscalers – even larger data centre operators which neocloud firms often count as key customers.

"There is just an enormous amount of spending getting injected into the system, " remarked Melissa Otto, head of Visible Alpha Research at S&P Global. "It's an arms race." And neoclouds have benefitted.

But the trade-off of their model is "greater financial risk" in the face of change, remarked Forrester VP and principal analyst Charlie Dai.

That includes any adjustments that their Major Tech customers might produce to their spending intends.

When Microsoft and Google forecast less AI spending than Wall Street analysts had projected, shares in a number of neocloud firms tumbled, this past week.

Much is additionally riding on Anthropic and OpenAI. It are both anticipated to start selling shares to the public in the months ahead.

If AI proves to be a bubble – and bursts – neocloud firms "are definitely going to face collateral damage, " remarked Bradley Tusk of Tusk Ventures.

For context, the future of the neoclouds additionally depend on their ability to keep borrowing. It gets more expensive as interest rates rise.

In a recent social media post, Elon Musk suggested this challenge could lead more than 200 neoclouds to "see guppy-level death and consolidation", with the smallest firms being the most vulnerable. "Some will make it through, but not many, " he continued.

For now, analysts at Yorkville Ives remarked demand for computing power still exceeds supply, adding that neoclouds are filling an notable gap that larger data centre firms cannot fill. But to some, the neocloud sector's recent wobbles are concerning.

Microsoft lately cancelled a agreement with a British neocloud outfit called Nscale against the backdrop of power supply matters which could last through to 2030.

Australia's Firmus just shelved intends to start selling shares to the public.

These developments come against the backdrop of a public backlash against data centres and questions concerning how much value AI can add to worker productivity. "There's reason to worry, " remarked Johnson.

Major, noisy and coming to a town near you – why the data centre backlash is growing.

Notably, a backlash over data centres is another threat to the AI juggernaut.

Taken together, the developments around these firms you' ve never heard of are feeding fears the AI bubble point to a situation that is still moving, and the coming days should bring more clarity.