Elon Musk is a neocloud doomer.
The SpaceX CEO took a hard stance on the future of neoclouds — cloud companies like CoreWeave and Nebius, that specialize in providing computing power for AI — in a Sunday X post.
He wrote that debt markets are reluctant to finance any company that relies almost entirely on AI data centers for revenue. He said SpaceX has secured $40 billion in debt to buy GPUs, but unlike neoclouds, his company earns revenue from its Starlink and rocket-launch activities.
“That means the 200+ neoclouds are going to see guppy-level death and consolidation,” he wrote. “Some will make it through, but not many.”
Musk’s post was in reply to one by venture capitalist Chamath Palihapitiya, who wrote on X that neoclouds are “disorganized and poorly capitalized.”
Replying to another X thread speculating if he was trying to drive down the prices of neocloud stocks and scoop them up for cheap, Musk replied, “SpaceX is not buying any neoclouds. Pointless.”
This comes as the stocks of neocloud companies have taken hits recently amid fears of high debt levels and a lack of other revenue streams. CoreWeave’s stock has dropped about 37% in the past month, while Nebius’ has dropped 30% in the same time.
Nvidia CEO Jensen Huang, however, has maintained that demand for AI cloud infrastructure is “off the charts.” Nvidia is a major backer of neocloud companies like CoreWeave, Nebius, Iren, Lambda, and others.
Another point that Musk added, in a separate X reply on Friday, was that the industry would see a lot of “stranded compute in partially complete data centers.”
By “stranded,” Musk was referring to compute that is ready to use but can’t be deployed because data centers aren’t yet equipped to turn it on.
As Business Insider’s Eugene Kim wrote last week, Amazon Web Services is expected to receive $5 billion worth of Nvidia GB300 racks, but the company does not have enough power in its data centers to power them. AWS will be storing the units in warehouses until its centers are ready.
Data centers, too, are running into some challenges. A recent Bernstein Research report projected that only about 35% of planned data center capacity in the US will be built.
Hyperscalers like Amazon, Google, Meta, and Microsoft, which have experience building and operating data centers, will likely successfully complete construction of their planned centers, the report predicted.
But Bernstein Research said newcomers, like celebrity investor Kevin O’Leary whose company has pledged to build 15 gigawatts of data center capacity, were called “bragawatts,” and their projects are unlikely to be realized.
It’s not just the neoclouds facing a troubled stretch amid an AI reckoning; neolabs are, too. Neolabs are small AI model development startups, like ex-OpenAI CTO Mira Murati’s Thinking Machines Lab and OpenAI cofounder Ilya Sutskever’s Safe Superintelligence. These labs are heavily funded and face strong competition from frontier AI behemoths like Anthropic and OpenAI.
Several VCs told Business Insider’s Ben Bergman recently that neolabs were overhyped and investing in them was a contentious topic.
