Elon Musk is a neocloud doomer.
The SpaceX CEO took a strong stance on the future of neoclouds – cloud companies like CoreWeave and Nebius that specialize in providing computing power for AI – in a Sunday X article.
He wrote that debt markets are reluctant to finance any company whose revenue depends almost entirely on AI data centers. He said SpaceX took on $40 billion in debt to buy GPUs, but unlike neoclouds, his company earns revenue from its Starlink and rocket launch businesses.
“This means that more than 200 neoclouds will experience guppy-level death and consolidation,” he wrote. “Some will, but not many.”
Musk’s post was a response to that of venture capitalist Chamath Palihapitiya, who wrote on X that neoclouds are “disorganized and poorly capitalized.”
Responding to another thread
This comes as shares of neocloud companies have recently been hit by fears of high debt levels and a lack of other sources of income. CoreWeave’s stock has fallen about 37% over the past month, while Nebius’s stock has fallen 30% over the same period.
Nvidia CEO Jensen Huang, however, maintained that the demand for AI cloud infrastructure was “off the charts.” Nvidia is a major backer of neocloud companies like CoreWeave, Nebius, Iren, Lambda and others.
Another point added by Musk, in a separate response to X on Friday, was that the industry would see a lot of “computations stuck in partially completed data centers.”
By “blocked,” Musk was referring to a computer that is ready to use but cannot be deployed because data centers are not yet equipped to activate it.
As Business Insider’s Eugene Kim wrote last week, Amazon Web Services is set to receive $5 billion worth of Nvidia GB300 racks, but the company doesn’t have enough power in its data centers to power them. AWS will store the units in warehouses until its centers are ready.
Data centers also face certain challenges. A recent report from Bernstein Research projects that only about 35% of planned U.S. data center capacity 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 predicts.
But Bernstein Research said newcomers, like celebrity investor Kevin O’Leary, whose company has committed to building 15 gigawatts of data center capacity, have been labeled “boasts,” and their plans are unlikely to come to fruition.
It’s not just neoclouds that are facing a tough time amid an AI reckoning; the neolabs are too. Neolabs are small AI model development startups, such as ex-OpenAI CTO Mira Murati’s Thinking Machines Lab and OpenAI co-founder Ilya Sutskever’s Safe Superintelligence. These labs are heavily funded and face stiff competition from AI giants like Anthropic and OpenAI.
Several venture capitalists recently told Business Insider’s Ben Bergman that neolabs are overrated and that investing in them is a controversial topic.
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