Neocloud stocks fall as Elon Musk says 200 companies in the sector may collapse

Shares of major neocloud stocks fell on Monday after Elon Musk said that more than 200 companies in the sector could collapse.

Nebius and CoreWeave dropped around 4%, adding pressure to a sector already facing investor concerns about debt-fueled expansion and whether the large AI infrastructure buildout will generate returns. Iren was last trading down 3.2%.

"As of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn't have substantial revenue independent of AI data centers," Musk, CEO of SpaceX and Tesla, said on a post on X on Sunday.

"That means the 200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many," he added.

Musk's SpaceX operates its own data centers through which it sells computing capacity. SpaceX is a direct competitor to the neoclouds which also rent compute.

CoreWeave, Nebius and Iren shares over the past five days.

Musk was replying to a post on X by Chamath Palihapitiya, the founder of Social Capital, who laid out his views on the state of the data center buildout. He suggested that there will be "a lot of partially stranded compute and compute sitting in inventory in 2027 than is currently forecasted," which will be "bought and paid for but effectively underearning (below total cost of capital) or collecting dust."

"2027 will be a turbulent year because it will clear out a bunch of wrong/bad bets. It will also be a consolidation year for a few," Palihapitiya said.

Neocloud stocks have taken a hammering over the past month, with CoreWeave and Nebius down more than 30% while Iren has tanked 40%. The sell-off started earlier this month after the spread on CoreWeave's five-year credit default swaps hit levels generally viewed as signs of distress. The yields on CoreWeave's bonds also climbed.

Investors have grown jittery over companies that are borrowing heavily to fund the purchase of expensive Nvidia chips, build data centers, and rent out computing power.