Top neocloud companies, including those backed by Nvidia, have fallen sharply over the past few days as concerns about the industry’s outlook have intensified and investors await the upcoming earnings reports from major technology companies.
Nebius stock has dropped by 37.3% from its highest point this year. It recently revealed that Nvidia owns a 9.3% stake in the company. CoreWeave, which Nvidia has a $3.4 billion stake in, has fallen by over 61% from its post IPO peak of $186. IREN stock has fallen by 47% from its peak this year.
The ongoing sell-off has coincided with those of other neocloud companies, especially those pivoting from Bitcoin mining operations. Riot Platforms, MARA Holding, Cipher Mining, and HIVE Digital are all down sharply from their peak.
Another notable thing is that, despite their revenue growth potential, their short interest has jumped. CoreWeave has a short interest of 27%, while Nebius and IREN have 28% and 22%, respectively. The situation is even dire among companies like RIOT and MARA that have a short interest of over 30%.
Why NBIS, CRWV, and IREN have plunged
There are several reasons why these stocks have dived despite receiving large deals. Nebius Group has received large orders from companies like Meta Platforms and Microsoft, while CoreWeave has a revenue backlog of over $100 billion. IREN received a $9.7 billion order last year and another one by Perplexity this month.
One reason is that the cost of doing business has surged as prices of key items like servers, memory, and chips has jumped. As a result, there is a risk that their capital expenditure plans will be higher than expected.
This, in turn, will likely push them to raise cash, either through debt and equity. CoreWeave’s total debt has jumped to over $25 billion, while Nebius and IREN have $8.5 billion and $4 billion, respectively.
Data shows that CoreWeave’s 2032 bond yield has jumped to 10.32% and has a B credit rating from S&P Global. This means that it is in a junk category, a sign that investors see it as being risky.
The companies are also facing the competition risk. SpaceX has already entered the industry and scooped large deals from companies like Google, Reflection AI, and Anthropic.
Meta Platforms, a top client for these neocloud companies, is aiming to start selling its spare capacity. At the same time, most companies in the Bitcoin mining industry have all pivoted to the AI data center industry.
Is it safe to buy the dip in neocloud stocks?
Neocloud companies are facing substantial risks, including the potential for dilution. Nonetheless, some of them are also seeing strong revenue growth.
For example, analysts expect that IREN’s revenue will jump by 41% this year to $723 million, followed by $3 billion next year. CoreWeave’s revenue will grow by 146% this year and 100% next year, reaching $25 billion.
Nebius, on the other hand, is expected to grow 540% this year and 237% next year. Its revenue will be $3.39 billion this year and $11.45 billion next year. This growth trajectory, together with the rising demand for compute will likely offset the balance sheet fears.
Analysts are largely optimistic about CoreWeave’s stock. The average estimate is that it will jump to $136 from the current $76. Nebius is expected to hit $222, while IREN is expected to hit $82, much higher than the current $37.
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