AI’s House of Cards
The fragile rise of the neoclouds: between explosive growth and crushing debt
They go by names like CoreWeave, Nscale, Lamba Labs, Nebius, and Crusoe. Barely on the radar 18 months ago, these neocloud companies have become essential yet largely invisible players behind the boom in generative artificial intelligence. They’re raising capital at a frantic pace and now signing contracts worth tens of billions of dollars. But behind this meteoric rise lies a far more precarious reality: their business model is built on colossal investments, largely financed through staggering levels of debt.
Dozens of companies have piled into this new market. Many of them actually predate the launch of ChatGPT: once focused on cryptocurrency mining, they’ve since “pivoted.” Unlike traditional cloud platforms, these companies specialize exclusively in the computing power needed for AI model training and inference — a focus that’s supposed to guarantee superior performance.
$45 Billion in Commitments
The neoclouds’ growth has been dizzying. CoreWeave and Nebius, both now publicly traded, illustrate the trend. CoreWeave generated $2.2 billion in revenue in the first half of the year, already surpassing its entire 2024 total. Nebius, spun out from the European operations of Russian internet giant Yandex, saw its revenue multiply more than sixfold over the same period, reaching $156 million.
And the contracts keep piling up. With the big cloud providers unable to build new data centers fast enough to meet demand, the neoclouds are stepping in. CoreWeave claims $45 billion in purchase commitments, including $14 billion from Meta and $11 billion from OpenAI. In September, Microsoft signed two contracts aimed at easing pressure on its Azure cloud: $19 billion with Nebius and $6 billion with Nscale.
Nvidia on Board
This contract boom has inevitably driven a surge in capital spending. In the first half of the year alone, CoreWeave’s capital expenditures approached $5 billion, more than twice its revenue. The company now operates 33 data centers, including five in Europe, up from just three two years ago. Over the same period, Nebius spent more than $1 billion, while UK-based Nscale plans to invest $3 billion domestically.
Most of these funds are going toward massive GPU purchases — over 250,000 units at CoreWeave alone — sourced primarily from Nvidia. The biggest neoclouds benefit from close ties with the Santa Clara chipmaker, which has taken equity stakes in several of them to cultivate new, high-spending customers for its GPUs. Nvidia provides them with its latest chips at the same time as, or even before, giants like Microsoft and Google.
Mountains of Debt
To finance their breakneck expansion, these companies have taken on enormous debt. By the end of June, CoreWeave owed $11 billion, while Nebius’s debt exceeded $1 billion. Lamba Labs has borrowed more than $700 million, and Crusoe recently secured nearly $1 billion in credit facilities. To reassure lenders, the neo-clouds have pledged their GPUs as collateral — hardware that can be sold off if financial trouble hits.
It’s a risky strategy. The resulting interest and repayment burdens can only be sustained if growth continues at a rapid pace. Yet the cost of computing power keeps falling, threatening to undermine their fragile economics. “Many of these companies exist as an arbitrage opportunity to take advantage of near-term constraints,” analysts at Seaport Capital warn. “But that window will close.”
Photo: CoreWeave