Nvidia-Backed Neocloud Stocks Plunge Amid Rising Costs and Competition

Several neocloud companies have seen their stock prices plummet over the past few days. Among them are CoreWeave, Nebius, and IREN, which have been impacted by concerns about the industry's outlook. Nvidia-backed CoreWeave has fallen by over 61% from its post-IPO peak of $186, while Nebius has dropped by 37.3% from its highest point this year. IREN stock has declined by 47% from its peak.

The sell-off has been accompanied by a surge in short interest among these companies. CoreWeave's short interest stands at 27%, while Nebius and IREN have 28% and 22% respectively. RIOT and MARA, which have pivoted from Bitcoin mining operations, also have high short interests of over 30%. Despite receiving large deals, such as a $9.7 billion order for IREN last year and another one by Perplexity this month, the companies' capital expenditure plans are likely to be higher than expected due to rising costs.

CoreWeave's total debt has jumped to over $25 billion, while Nebius and IREN have $8.5 billion and $4 billion respectively. CoreWeave's 2032 bond yield has risen to 10.32% with a B credit rating from S&P Global, indicating it is in the junk category. Analysts expect strong revenue growth for these companies, with CoreWeave's revenue expected to grow by 146% this year and IREN's by 41%. However, investors remain cautious due to potential dilution and competition risks.

SpaceX has entered the industry and secured large deals from companies like Google. Meta Platforms is also planning to start selling its spare capacity. The neocloud companies are facing substantial risks, but their revenue growth may offset balance sheet concerns. Analysts are optimistic about CoreWeave's stock, predicting it will jump to $136 from its current price of $76.