CoreWeave debt crisis triggers neocloud sector selloff

Neoclouds, specialized AI compute providers, are facing a debt crisis as markets turn nervous and interest rates rise. The iShares Semiconductor ETF lost approximately 15% in October. CoreWeave's credit default swaps spiked to 1,200 basis points, with market pricing implying a bankruptcy probability of over 60% within five years. This fear is exacerbated by concerns over the financing viability of OpenAI and Anthropic, as open-source models increase competition and pressure token prices. Nvidia supports neoclouds with early chip access and financing to avoid reliance on hyperscalers who may develop cheaper in-house chips. Private competitors like N-Scale are failing to meet delivery deadlines, which could worsen the compute crunch. Investors are currently selling neoclouds as a basket, ignoring individual company differences, though the sector is expected to recover in three to nine months as revenue from existing contracts materializes.

Jan Beckers argues that while CoreWeave's specific debt load is risky, the broader neocloud sector is being oversold due to basket trading and temporary financing costs. He notes that the compute crunch will persist due to failed private sector delivery timelines. Beckers highlights IREN as a mispriced opportunity, noting its stock fell nearly 45% in the last four weeks. IREN is financially more conservative than CoreWeave and holds a portfolio of secured, low-cost power purchase agreements directly with the grid, totaling approximately 5 gigawatts of near-term available power. This hard asset is considered extremely valuable as power remains a scarce factor in AI expansion. IREN has contracts with customers like Microsoft and Nvidia. Beckers forecasts that IREN's quarterly revenue will quadruple in the next three to nine months due to the fulfillment of existing contracts, without requiring new major investments. His base case scenario projects a revenue run-rate of over $10 billion by the end of 2027, compared to a current market capitalization of $8 billion. Beckers' fund has increased its position in IREN during the dip and expects a recovery once the revenue catalysts hit.