The fast-multiplying demand for AI computing power has raised fears of a crunch that could outdo the fanciest cereal in the organic aisle at Trader Joe’s.
It has also created a mouth-watering opportunity for specialized cloud providers renting out high-end AI computing power. The best known of these so-called neocloud companies, whose customers are spared the costly task of buying and maintaining physical hardware, is Coreweave.
On Neocloud Nine
Demand for their services is multiplying as resources are disproportionately captured by hyperscalers: Epoch AI calculated that Amazon, Google, Meta, Microsoft and Oracle owned 71% of global AI compute as of April, up from 63% in early 2024. Even they are facing constraints: Some AI researchers at Google have had to join the queue for access to its cloud resources, leading a handful to quit and launch their own ventures. Developers at smaller firms and in crucial sectors including defense, science, education and healthcare could end up on the wrong side of a bottleneck.
Neoclouds’ earnings growth underscores the market’s potential. Last month, Coreweave, the largest independent neocloud company, reported its first-quarter revenue doubled to $2.1 billion. Its shares are up 53% this year, while rival IREN is up 68%. Dutch neocloud Nebius, however, is making the most noise of late:
- Situational Awareness, a buzzy Silicon Valley hedge fund run by former OpenAI researcher Leopold Aschenbrenner, last week disclosed a 5.6% stake in Nebius worth roughly $2.8 billion.
- Nebius revenue rose 684% to $399 million in its latest quarter and, with shares up 176% this year, its $58.6 billion market cap as of Friday narrowly trails Coreweave’s $59.7 billion.
The companies face shared hurdles. They’re losing money (Coreweave $740 million in its latest quarter, Nebius $100 million) and will have to contend with the depreciation of their GPU equipment over time and the expectation that compute prices will fall as data centers scale.
History Lesson: McKinsey analysts noted last fall that, during the Cloud 1.0 era in the early 2000s, there was a similar wave of fast-growing firms that plugged compute gaps. Once hyperscalers expanded their own capacity, almost all of them ended up “acquired, sidelined, or forced into niche roles,” they wrote. Well, two weeks ago, Google and Blackstone announced they were launching their own compute-as-a-service joint venture, and last week, Mark Zuckerberg said his Meta, the only US hyperscaler not in the cloud business, could “definitely” start renting out computing resources as it builds out its own capacity. Gulp.
