Updated Version 1 - As debt concerns intensify, Musk's pessimistic outlook impacts "New Cloud" enterprises.

Updated analyst comments and stock prices

Reuters, October 26 - On Monday, New Cloud company shares fell after SpaceX CEO Elon Musk stated (link) that the industry may face consolidation and bankruptcies, intensifying worries about the widening gap between artificial intelligence infrastructure investments and revenues.

CoreWeave CRWV.O, which has become a typical example of growing concerns fueled by huge AI spending, saw its stock down 1.6%. Nebius Group NBIS.O fell 4%, and IREN IREN.O declined 1.5%.

Applied Digital APLD.O shares dropped 2%.

Musk posted on social media Sunday that New Cloud companies will face large-scale consolidation and failures, adding that SpaceX SPCX.O would not acquire any New Cloud company, calling such a move "pointless."

"More than 200 New Cloud companies will face mass death and industry consolidation akin to guppies. Some will survive, but not many," he said.

"Musk is right. To keep funding these projects, you will need another source of revenue and profits. The cost of capital is too high, making returns unattractive," said Thomas Hayes, chairman of New York's Great Hill Capital.

A CoreWeave spokesperson stated in an email to Reuters that the company still sees opportunities to raise funds for its own growth, and that strengths such as its "differentiated technology" strongly support this view.

Musk is not the only one (link) pointing out risks in the industry.

Earlier this month, research firm Gartner noted that among the more than 100 "New Cloud" companies most affected by rising leverage, CoreWeave ranked first, noting that by 2032, 80% of these companies may cease independent operations.

Some brokerages predict spending in the AI sector will break the $1 trillion mark next year, heightening investor concerns about the consequences of excessive reliance on debt—especially as AI assets are rapidly depreciating and markets anticipate further rate hikes by the Federal Reserve.

Due to these concerns, Nebius' bonds maturing in 2034 63954QAQ9= and CoreWeave's bonds maturing in 2033 21873SAL2= have sunk to historic lows.

CoreWeave, Nebius, Applied Digital, and TeraWulf all reported quarterly losses over the past year, while IREN has failed to turn a profit in the past three quarters, further raising doubts about their profitability in the market.

Just this month, CoreWeave, Nebius, and IREN shares have fallen by more than 30%. Investors betting on their share declines have earned at least $6 billion (link) in paper gains.

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