DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

Shares of major neocloud companies fell Monday after Elon Musk warned that more than 200 businesses in the sector could collapse. The comments intensified investor anxiety around heavy borrowing, expensive artificial intelligence infrastructure and the uncertain returns associated with the sweeping data center buildout.

Nebius, CoreWeave and Iren each dropped more than 4% in early premarket trading. The stocks later recovered part of those losses, leaving Nebius roughly flat while CoreWeave and Iren were down around 2%.

Musk, the CEO of SpaceX and Tesla, pointed directly at a tightening market for borrowed money. “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 wrote Sunday on X.

His forecast for the crowded sector was grim. “That means the 200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many,” Musk added.

SpaceX operates its own data centers and sells computing capacity through them. That puts the company in direct competition with neocloud operators, which similarly rent computing resources to customers.

Musk made his comments while responding to an X post from Chamath Palihapitiya, founder of Social Capital. Palihapitiya offered his own warning about the condition of the data center expansion and the amount of computing capacity that could be left underused.

Palihapitiya suggested there would be “a lot of partially stranded compute and compute sitting in inventory in 2027 than is currently forecasted,” adding that the capacity would be “bought and paid for but effectively underearning (below total cost of capital) or collecting dust.”

He also predicted a difficult reckoning for the industry in 2027. “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.

The sector was already under serious market pressure before Musk weighed in. Over the past month, CoreWeave and Nebius shares have fallen more than 30%, while Iren has plunged 40%.

The selloff began earlier this month after the spread on CoreWeave credit default swaps with a five year term reached levels generally regarded as signs of distress. Yields on the company’s bonds also moved higher.

Investors have become increasingly nervous about companies borrowing heavily to purchase costly Nvidia chips, construct data centers and rent computing power. The central concern is whether the massive AI infrastructure expansion can ultimately produce adequate returns.

Nvidia, which has invested in several neocloud companies, sought to bolster confidence in the industry during its GTC event in Berlin, Germany. In an interview with CNBC, Nvidia CEO Jensen Huang described demand for neocloud services as “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. He added, “The demand of the capital is much greater than the availability of the capital. That’s going to get solved.”

Nebius chief revenue officer Marc Boroditsky sought to separate his company from the debt concerns surrounding CoreWeave. “we’re not carrying the kind of debt that they are,” he told CNBC, while saying Nebius would sell out its capacity if it brought its planned 2027 capacity online.

Boroditsky said the company could encounter “the same type of dynamic” in 2028. His remarks presented a sharp contrast with the market’s concern that future computing capacity could struggle to earn enough money.

Iren Co-CEO Daniel Roberts also defended customer demand despite the pressure on neocloud shares. “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.

Roberts said conversations for next year covered multiples of all the capacity Iren could possibly bring online. He added that 2028 had started coming into focus during the last month, while reiterating, “But the demand is there.”

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.