CoreWeave and neocloud firms spark AI bubble fears amid heavy debt loads

Financial anxiety is gripping Silicon Valley and Wall Street as once-obscure data centre companies known as neocloud firms face mounting debt and plunging share prices, triggering widespread fears that the artificial intelligence market may be a speculative bubble. These specialized operators manage warehouses filled with expensive hardware that they lease out to major AI developers, but their heavy reliance on borrowed money and long-term contracts has left them vulnerable to shifting market sentiment and rising borrowing costs.

The turmoil has hit firms that trace their origins to the volatile cryptocurrency mining sector particularly hard. CoreWeave, an early pioneer that started by mining Ethereum, has accumulated a staggering $35.1bn (£26.3bn) in debt, according to analyst Cory Johnson of "The Quiet Period" IPO research outfit. Lenders often weigh the creditworthiness of major corporate customers like Microsoft or Meta more heavily than that of the neocloud providers themselves when issuing these loans, a dynamic that helped fuel the rapid accumulation of liabilities. Yet market confidence has deteriorated rapidly, with CoreWeave stock losing a quarter of its value over the past month and plummeting another 15% in a single day, as reported by Matt Stoller in BIG by Matt Stoller. Similar downward spirals have impacted fellow neocloud operators Nebius, IREN, and Applied Digital, alongside adjacent giants such as Oracle.

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The vulnerabilities extend beyond mere share price corrections, raising alarms about broader market contagion. Analysts at Gartner predict that by the end of the decade, 80% of neocloud firms will cease independent operations, while Forrester experts expect at least three to face imminent acquisition as their finances grow shaky. The fragility of the sector was further exposed when Microsoft cancelled a deal with British neocloud outfit Nscale due to ongoing power supply issues, and Australia's Firmus shelved its initial public offering plans following a Wall Street revolt.

Industry executives have pushed back against the growing panic, insisting that the underlying demand for computing power remains exceptionally robust. CoreWeave CEO Mike Intrator defended his business model by arguing that the market is acting irrationally, pointing to the queue of major corporations seeking AI infrastructure. Even so, insider stock sales have drawn intense scrutiny. Co-founders of CoreWeave have cashed out $3.3bn in stock since the company went public, including billions during the current year alone, sparking accusations from critics that insiders are pumping valuations before dumping shares on public investors.

Efforts to reassure the public have met with skepticism. When Nvidia CEO Jensen Huang embarked on a press tour to express optimism in CoreWeave, company shares promptly slid an additional 11%, underscoring the diminishing influence of executive boosterism. High-profile figures have also floated controversial interventions behind the scenes. According to a report by the Open Markets Institute, OpenAI Chief Financial Officer Sarah Friar briefly floated a federal government backstop for AI infrastructure investments in late 2025 before retracting her remarks following public outrage. Weeks later, venture capitalist David Sacks posted on social media that a reversal in AI-related investment would risk a recession, language that critics argue lays the groundwork for future bailout pleas should the neocloud sector implode.

Government officials have attempted to project calm amid the volatility. U.S. Treasury Secretary Scott Bessent tried to downplay concerns on television, characterizing neocloud firms as a small and external component of the overall economic ecosystem. Nevertheless, analysts warn that the broader implications of a neocloud collapse could be severe. As the BBC reports, experts emphasize that any major adjustment in Big Tech spending plans will immediately transmit collateral damage down the line to smaller data centre operators.

Market observers will be closely monitoring upcoming corporate earnings reports, central bank interest rate decisions, and the trajectory of neocloud debt obligations as the sector navigates its current crunch. Whether these companies can restructure their massive liabilities or face a wave of distressed liquidations remains the central question facing financial regulators and technology investors alike.