The neocloud sector is witnessing a paradox: despite stable financial growth forecasts, traders are increasingly betting against key players such as CoreWeave, Nebius, and IREN. This trend underscores skepticism about the sustainability of their rapid expansion amid significant debt and dilution concerns.
Rising Short Interest Signals Doubt
Data shows that short interest in these companies has remained high this year, reflecting investor expectations of possible declines in stock prices. CoreWeave leads with a short interest of 14%, while IREN's is at 16% and Nebius at 20%. Other firms trying to gain a foothold in the sector are also facing elevated short interest, with MARA Holdings at 26% and Riot Platforms at 17%.
In stark contrast to these bearish sentiments, many of these stocks have recently experienced impressive price increases. CoreWeave, despite a pullback from its monthly peak, is trading 50% higher than its April lows. Nebius has surged by 163%, while IREN has appreciated more than 72%. MARA Holdings and Riot Platforms have recorded remarkable gains of over 90% and 105%, respectively.
Exceptional Revenue Growth vs. Debt Concerns
The rapid growth of these neocloud firms is supported by substantial revenue projections. Analysts expect CoreWeave’s revenue to rise by 146% this year, reaching $12.7 billion, with projections of $24.9 billion in the next fiscal year. Major contracts with tech giants like OpenAI, Anthropic, and Microsoft significantly contribute to this growth, with CoreWeave boasting a revenue backlog nearing $100 billion.
Similarly, Nebius is projected to experience a staggering 549% revenue increase this year, amounting to $3.4 billion, and is expected to reach $11 billion next year through partnerships with Microsoft and Meta Platforms. IREN is also on a growth trajectory, with anticipated revenues of $770 million this year and $3.22 billion next year, bolstered by a previous $9.7 billion deal with Microsoft.
However, this rapid expansion comes at a cost. Companies are heavily investing in data center infrastructure, leading to soaring debt levels. CoreWeave's debt has ballooned from over $8.2 billion in 2024 to nearly $30 billion today, while IREN's debt escalated from $964 million last year to $4.3 billion. Nebius also saw its borrowings surge to over $4.1 billion.
The Dilemma of Depreciation and Rising Costs
Another pressing concern is the potential depreciation of AI chips as firms invest in increasingly advanced technology. CoreWeave reported a dramatic rise in depreciation costs, jumping to $1.1 billion in Q1 from $443 million a year earlier. Nebius faced a similar situation, with depreciation costs increasing from $49 million to $212 million during the same period. Analysts warn that as firms acquire newer models, older technology may depreciate significantly.
Despite these challenges, supporters of these companies argue that the current debt levels and dilution are justified, drawing parallels to industry giants like Tesla, Google, and Facebook, which endured significant losses before achieving profitability. The narrative of long-term value creation is compelling, and these companies are counting on sustained demand for their core GPU technologies as AI continues to evolve.
Looking Ahead
As the AI market continues to expand, the dynamics within the neocloud sector will be closely monitored. The current high short interest suggests that many investors remain cautious about the sustainability of growth amid increasing debt and potential depreciation challenges. However, the recent stock price rallies indicate that optimism persists among certain investors. The future for these companies will depend on their ability to balance growth with financial stability as the AI sector evolves.
