The financial markets are increasingly concerned about true demand for the computing services that are at the heart of the AI revolution.
Anthropic, a leading developer of frontier AI models, is expected to go public next week. It will be valued at around $1.4 trillion, which sounds fantastic. The problem? The expected valuation has dropped by several hundred billion dollars over the past few weeks. In addition, Tuesday’s return of higher-than-expected October Consumer Price Index inflation numbers caused the market to forecast a more aggressive interest rate policy by the Federal Reserve. Many companies in the AI ecosystem carry heavy debt loads. The NeoClouds, providing cloud compute for AI companies, are particularly debt-heavy.
Fortunately, some clarity about true demand for AI compute will be forthcoming this week as two of the leading NeoCloud companies, CoreWeave and Nebius, release their quarterly financial results.
On Tuesday, CoreWeave crushed numbers across every metric as the company drove rapid utilization of its accelerated computing services. However, net income losses continue, primarily due to heavy depreciation and ballooning quarterly debt service obligations. These now approach $1 billion in net interest expense. That is a key risk.
On Thursday, Nebius, another major NeoCloud, will report its results. Analysts anticipate strong revenues for this company as well. Nebius is expected to continue to aggressively deploy its new inventory of Nvidia’s accelerated computing clusters. The NeoCloud companies are important because their operating metrics and revenues offer critical insights for determining the true demand for AI compute.
CoreWeave and Nebius are perhaps the leading companies in the NeoCloud business. They rent access to clusters of advanced chips, typically designed by Nvidia. Their customers use those chips to train AI models and to run them to answer queries, a process known as inference. For a startup AI company, renting a cluster provides a path for getting a product to market without building a multibillion-dollar data center.
For the hyperscalers — Google, Amazon, and Microsoft — the NeoClouds offer an avenue for satisfying demand from customers that currently cannot be met by their own data centers.
Still, over the past few weeks, the share prices of both companies have dropped sharply. The market is worried about whether the companies can continue to access capital at competitive rates that will not ultimately lead to financial distress. At the end of June, CoreWeave had a cash position of $5.5 billion against $35 billion in debt. At the moment, CoreWeave’s debt is yielding 16%, which is consistent with junk status. CoreWeave has to pay for chips and data center capacity before customers are obligated to start paying for compute capacity.
The backlog of business is growing, but so is the capital investment necessary to deliver it. In August, the company put its capital spending guidance at $35 billion to $39 billion against only around $13 billion in 2026 revenue. That is an extremely large mismatch. Management must convince the market that it will be able to fund that very wide gap at manageable rates. These earnings reports are also important for the overall health of the economy.
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Financial distress at CoreWeave or Nebius could instantly freeze the market for new syndicated (multi-institution provided) debt supporting independent data center builds. Moreover, a distress event at either company would trigger immediate contagion across valuations for all alternative infrastructure providers, driving up the cost of capital across the AI sector.
Furthermore, funding pressure in the NeoCloud ecosystem would immediately reverberate throughout the economy and arguably could lead to an economic slowdown and a loss of momentum in the race for AI superiority against China.
The writer owns shares in CoreWeave, Nvidia, Nebius and Google.
James Rogan is a former U.S. diplomat who later worked in law and finance for over 30 years. He writes a subscriptionbased daily note on markets, economics, politics and social issues. His email is [email protected].