Why Investors Are Bullish On Neoclouds

Investors are bullish on neoclouds, companies building AI-dedicated computing infrastructure, but these stocks are considered risky. Unlike established hyperscalers, this emerging sector has issued significant debt for build-outs, facing warnings about profitability. Neoclouds aim to offer AI workloads at roughly a quarter of the cost of traditional hyperscalers. CoreWeave, a major player, has seen its stock price surge since its 2025 debut, with analysts expecting further upside due to high GPU demand. However, rising debt levels pose a significant risk, with CoreWeave having an almost nine times debt-to-EBITDA ratio and debt between $20-30 billion. The company anticipates substantial revenue growth, from $5 billion to over $12 billion this year, which requires significant and expensive scaling. Similarly, Nebius issued over $4 billion in debt in mid-March for data center expansion, leading to a 20% stock decline. Many neoclouds are heavily borrowing, banking on rapid AI demand growth. Some experts, however, caution that these expectations might be overly optimistic, predicting a 5-10 year period before real returns. If growth falters, companies could struggle with debt repayment or face takeovers. A broader question for the tech sector is whether overall AI demand will meet expectations, a gamble neoclouds are making with billions invested today.