Top neoclouds backed by Nvidia (NASDAQ:NVDA) are facing major headwinds as most of them remain in a bear market.
IREN (NASDAQ:IREN), an Australian Bitcoin (CRYPTO: BTC) miner that is pivoting to the AI industry, dropped to $35.20, down by 54% from its highest level last year. Nvidia invested $2 billion in it.
Nebius (NASDAQ:NBIS), in which Nvidia invested $2 billion in it, ended the week at $221, down by 26.50% from the year-to-date high. CoreWeave (NASDAQ:CRWV) has slumped by over 50% from its all-time high.
Worse, Firmus, an Australian neocloud company that Nvidia backs, pulled its $5 billion IPO on Friday as investors balked at its high valuation. It is now opting for a private fundraising, which will be followed by a Nasdaq listing.
IREN, CoreWeave, and Nebius Have Slumped Amid AI Bubble Fears
These stocks, which are also highly shorted, have slumped amid the growing concerns that the AI bubble may burst. Ray Dalio has warned that the rising interest rates will be a key catalyst for the reversal. Michael Burry has also insisted that the bubble is in the final stage of bursting.
These concerns rose this week after reports showed that OpenAI’s annualized revenue was over $20 billion lower than initially expected. OpenAI is seeing intense competition from Anthropic and other open-weight AI models.
At the same time, competition is soaring in the industry. SpaceX (NASDAQ:SPCX) is raising $40 billion in debt to buy Nvidia (NASDAQ:NVDA) chips as it intensifies its presence in the industry. It has already inked major deals with top companies like Alphabet, Anthropic, and Reflection AI.
More companies like Lambda and Nscale, together with top Bitcoin mining firms like RIOT Platforms, MARA Holdings, and Cipher Mining, are all investing heavily in the industry.
Soaring Debt, Depreciation, and Potential Dilution
Neocloud companies are also facing major challenges. One of them is the soaring debt as the cost of servers, GPUs, and storage devices surge.
CoreWeave has seen its debt jump to over $29 billion, with management expecting the annual capital expenditure to jump to nearly $40 billion this year. Its outstanding shares have jumped to 457 million from 317 million last year. Nebius raised over $2 billion in a share sale in the second quarter, and has more shares to sell.
There are also concerns about depreciation. Burry believes that these companies will have to depreciate their GPUs faster than they estimate. Instead of the 5-6 years that the companies estimate, Burry believes it is between 2 and 3 years.
The latest results show that depreciation costs keep climbing. CoreWeave reported depreciation of more than $1.3 billion against revenue of $2.5 billion, while Nebius recorded $259 million against revenue of $582 million. At IREN, depreciation of $112 million consumed 81% of revenue.
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