The Booming Yet Fragile World of Neoclouds: A Look at Coreweave, Lambda Labs, Crusoe, and Nebius
In the rapidly evolving landscape of artificial intelligence, companies like Coreweave , Lambda Labs , Crusoe , and Nebius have emerged as prominent players. These organizations represent the most booming yet fragile segment of the AI value chain: Neoclouds. They have successfully raised tens of billions in capital and debt to construct sprawling data centers equipped with NVIDIA GPUs . However, their business model hinges on an increasingly questionable assumption: the belief that the demand for computing capacity will continue to skyrocket exponentially.
The Importance of Understanding Neoclouds
The concern extends beyond mere financial losses. The entire infrastructure relies on a vicious cycle :
- They incur debt to acquire GPUs.
- They use those GPUs as collateral for additional debt.
- The revenue generated predominantly comes from the same companies that supply the chips and provide loans.
Understanding the Business Model
Neoclouds promised rapid GPU infrastructure deployment—often within months rather than years—with prices up to 66% lower than AWS , Azure , or Google Cloud . As companies scrambled for GPU resources, especially as traditional Hyperscalers failed to meet demand, the market initially responded with enthusiasm. For instance, Coreweave soared from a mere $16 million in revenue in 2022 to an astonishing $5.35 billion last year. Similarly, Nebius —partly rooted in Yandex —jumped in quarterly earnings from $5 million to $105 million . Overall, the Neocloud segment has experienced astonishing growth, averaging 82% annually over the past four years.
The Risks of Dependency on a Single Client
Despite the impressive numbers, the revenue stream for many Neoclouds is unusually concentrated. For example, Coreweave derived a staggering 60% of its anticipated 2024 revenues from Microsoft, primarily through its partnership with OpenAI . If you subtract the massive contributions from Microsoft’s projects and similar payouts from NVIDIA (an additional 15% ), the combined revenue across the main Neoclouds dwindles down to approximately $1 billion . This suggests severe dependency on a limited clientele, as analysts, including Ed Zitron , have pointed out.
Tracing the Financial Pathway
Another significant concern is the financial health of these companies. Coreweave reportedly has $25 billion in debt and generated revenues of only $5.35 billion —a staggering debt-to-asset ratio of 85.4% . This figure is akin to having a mortgage that’s double your annual income, exacerbated by the rapid depreciation of GPUs, unlike stable property values.
Meanwhile, Nebius has secured a $4.2 billion round to bolster its infrastructure supporting its lucrative contract with Microsoft. Similarly, both Lambda Labs and Crusoe have raised substantial funding through various channels. Their operational blueprint generally follows this pattern:
- Secure a large contract.
- Leverage that contract for funding purposes.
- Purchase GPUs from NVIDIA.
- Expand data center operations.
- Repeat the cycle.
Complications in the Neocloud Landscape
The challenges arise when primary clients like Microsoft decide to scale back their demands or when Neoclouds struggle to build their infrastructure quickly enough.
NVIDIA’s Central Role
NVIDIA not only invests directly in several Neoclouds but is also a pivotal player in their supply chain and client base. Just recently, Coreweave inked a $6.3 billion deal with NVIDIA to guarantee more capacity until 2032. This arrangement creates a particularly intricate scenario, making NVIDIA essential for sustaining growth across many Neoclouds, which in turn rely on NVIDIA for fulfilling client contracts.
The Cost of Building Infrastructure
Establishing a Gigawatt Data Center is financially demanding, costing anywhere between $32.5 billion and $50 billion . Companies like Oracle and Crusoe took about 2.5 years to complete such a project for OpenAI. Nebius, however, has promised to deliver multiple gigawatts relatively quickly, albeit under increasingly unrealistic conditions.
Signs of Instability
Recent reports indicate that Coreweave has experienced significant operating losses while simultaneously reporting explosive growth in income. Moreover, Nebius forecasts reaching $1.1 billion in annual recurring revenues by the end of 2025, significantly influenced by its deal with Microsoft. Analysts are left to ponder critical questions: What happens if Microsoft decides to invest in its capacity? What if OpenAI, reliant on such immense operations, faces significant setbacks?
The Decisive Moments Ahead
Consolidation is already in motion. Recently, Coreweave acquired Core Scientific for $9 billion in shares. Industry experts anticipate that only a few formidable players will emerge unscathed from this turbulent environment. As the inevitable adjustment approaches, the pressing question remains: how devastated will these companies be when the reality of GPU capacity demand inevitably clashes with their heavily leveraged financial structures?