BCA analysts recommended shorting Nebius and CoreWeave. How are they any worse than Amazon and Meta?

Investors should open short positions in the stocks of AI infrastructure providers—the so-called “neoclouds,” including Nebius and CoreWeave—and bet on the growth of traditional IT giants. This recommendation comes from the investment firm BCA Research, according to MarketWatch. BCA’s chief strategist, Noah Weisberger, warns that in the worst-case scenario, the sector will simply “destroy capital,” and in the best-case scenario, the companies will become ordinary “cyclical leasing firms.”

Neoclouds are investing borrowed funds in cloud capacity, which will ultimately become a “low-margin commodity service,” according to a note from BCA Research cited by MarketWatch. BCA Research suggests that six neo-cloud companies will derive far less benefit from their capital expenditures than hyperscalers—the world’s largest cloud providers, such as Amazon and Microsoft—do from theirs. Nebius, CoreWeave, and their competitors “are spending too much capital relative to their revenue,” the analysts write.

Unlike IT giants, the return on invested capital for non-cloud companies remains negative on average across the industry, BCA warned. Furthermore, these companies will face fierce competition in the basic cloud computing market going forward, and their services will inevitably become a low-margin product, leading to a decline in their valuation relative to revenue and profits, according to BCA Research. Finally, stocks in the sector are subject to extreme volatility. For example, CoreWeave’s stock soared 39% in the first half of 2026 but plummeted 28% in July.

According to Weissberger, in the worst-case scenario, such companies will simply “destroy capital,” and in the best-case scenario, they will become “cyclical leasing companies.”

Although the market also has reservations about the pace of capital expenditures by major IT giants, this group generates stable profits that more than cover their cost of capital, according to BCA Research.

To offset the difference in performance, BCA recommends that investors allocate 80% of their funds to long positions (betting on growth) in the stocks of four hyperscalers— Microsoft, Alphabet, Meta, and Amazon —with allocations proportional to their market capitalization. The strategist suggests allocating the remaining 20% of funds to short positions (betting on a decline) by opening short positions in six neoclouds: CoreWeave, Nebius Group, Applied Digital, Iren, TeraWulf, and Cipher Digital.

BCA Research attributes this ratio to risk factors: the beta (volatility measure) of hyperscalers relative to the S&P 500 index is about 1.2, whereas that of neoclouds reaches 2.9. Analysts suggest that the proposed transaction structure will help balance the portfolio and achieve a target net beta of 2 relative to the broader market.

Despite the BCA team’s skepticism regarding the long-term profitability of neo-clouds, many brokerage firms continue to believe in the sector’s growth over the coming year, according to MarketWatch. According to FactSet data cited by the publication, most analysts are maintaining “buy” recommendations for both the aforementioned cloud companies and related IT infrastructure companies, such as Oracle, Equinix, and Digital Realty Trust.

This article was AI-translated and verified by a human editor