Rothschild Downgrades Neocloud Stocks, Warns of Hyperscaler Risks in AI Buildout

Rothschild & Co. Redburn has taken a cautious stance on certain neocloud and Bitcoin mining companies, initiating 'Sell' ratings for CoreWeave (CRWV) and Nebius (NBIS), while assigning 'Neutral' ratings to six other firms.

The firm believes that credit markets are sending an important signal about the risks associated with AI equities, which are largely ignored by investors. Hyperscalers, it notes, have more economic leverage than is apparent once off-balance-sheet commitments are included, potentially limiting their ability to fund future AI infrastructure spending.

CoreWeave and Nebius face 'Sell' ratings due to their exposure to the neocloud model and potential valuation concerns. Traditional real estate investment trusts (REITs), on the other hand, could benefit indirectly from continued data center construction.