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Musk's warning hits neocloud stocks as debt concerns mount

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Musk's warning hits neocloud stocks as debt concerns mount

Business News Tech AI Musk's warning hits neocloud stocks as debt concerns mount

Shares of neocloud companies have fallen significantly amid concerns about consolidation in the sector. Elon Musk warned that many neoclouds may face closures as they struggle with heavy debt burdens. Research firm Gartner suggested that a high percentage of these companies could cease operations by 2032. Investor anxiety has increased due to mounting losses and a heavy reliance on AI spending.

Shares of neocloud companies declined in premarket trading on Monday after Elon Musk said the sector could face consolidation and failures, adding to concerns over a widening gap between AI infrastructure investment and revenue generation. CoreWeave, which has become a poster child for mounting concerns over heavy AI spending, led the declines with a 4.5% drop, while Nebius Group fell 3.4% and IREN dropped 3.3%. Shares of Applied Digital and TeraWulf shed over 2% each, while Core Scientific lost 1.7%.

In a social media post on Sunday, Musk said that neocloud companies would face significant consolidation and failures, adding that SpaceX would not buy any neocloud companies. "200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many," he said. CoreWeave and Nebius were not immediately available for comment. Musk was not alone in flagging the risks to the sector. Earlier this month, research firm Gartner said CoreWeave was at the top of the 100-odd neoclouds most exposed to the increasing leverage, and added that 80% of the companies could cease independent operations by 2032.


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