Investors Short Neocloud Stocks Amid AI Boom Despite Strong Growth

As the artificial intelligence sector experiences unprecedented growth, a paradox is emerging in the market. Traders are increasing short positions against some of the fastest-growing neocloud companies, including CoreWeave, Nebius, and IREN, even as these firms report impressive financial results driven by partnerships with industry giants like OpenAI and Microsoft.

The short interest in these companies reflects investor sentiment. CoreWeave, currently leading the pack, has seen its short interest rise to 14%. IREN follows closely at 16%, while Nebius has attracted a staggering 20% short interest. This trend extends to newer entrants as well; MARA Holdings and Riot Platforms are also facing skepticism, with short interests climbing to 26% and 17% respectively.

Despite this bearish sentiment, recent stock performance suggests that short-sellers may be misjudging the market. CoreWeave's stock has pulled back from its recent peak but remains significantly elevated, trading 50% above its April lows. Nebius has surged by 163%, while IREN is up over 72%. MARA Holdings and Riot Platforms have seen even steeper climbs, with increases of over 90% and 105% respectively. These movements show that, at least in the short term, the market is rewarding growth amid the AI boom.

Financial forecasts for these neocloud companies are striking. CoreWeave is projected to achieve a revenue increase of 146%, reaching $12.7 billion in the current fiscal year, with an anticipated jump to $24.9 billion next year. These gains are bolstered by significant contracts with major tech players. Similarly, Nebius is expected to see a revenue surge of 549% to $3.4 billion this year, with further growth predicted at 220% to $11 billion next year. IREN is also on a growth trajectory, with revenue expectations of $770 million this year, rising to $3.22 billion next year, supported by substantial deals with Microsoft.

However, optimism surrounding these companies is tempered by concerns about mounting debt and shareholder dilution. CoreWeave, for instance, has committed to a staggering $30 billion to $35 billion in capital spending this year, resulting in a debt increase from $8.2 billion in 2024 to nearly $30 billion currently. IREN’s debts have escalated from $964 million last year to $4.3 billion, while Nebius has seen its borrowings rise to over $4.1 billion. Such debt levels raise alarms among analysts, who worry that the companies are overextending themselves and diluting their shareholders in the process.

Another pressing issue is the depreciation of assets, particularly as new generations of AI chips are released. CoreWeave's depreciation costs skyrocketed to $1.1 billion in Q1, up from $443 million the previous year. Nebius also reported a significant jump in depreciation, rising from $49 million to $212 million. This depreciation could further strain finances as companies invest in more advanced technologies to remain competitive.

Proponents of these companies argue that the current financial strategies are reminiscent of early-stage tech giants like Tesla and Google, which incurred heavy losses before achieving profitability. They suggest that the investments in infrastructure and technology are necessary for positioning these firms for long-term success. The narrative surrounding these neocloud companies is complex, shaped by remarkable growth potential and significant financial risks. As the AI sector continues to expand, resolving the tension between growth and sustainability will be critical in determining the future trajectories of CoreWeave, Nebius, and IREN.