Nebius plunges 10%, CoreWeave 17% as Gartner warns of AI cloud sector risks
Gartner warns that most AI neocloud providers may not generate enough revenue to recoup their capital spending by 2030
Gartner argues that AI data center owners need to generate a cumulative $8.5 trillion in revenue by 2030 to cover announced capital spending, financing costs, and return on invested capital / Photo: Nebius
Shares of Nebius Group, the cloud provider founded by Arkady Volozh, plunged more than 10% on Wednesday. Its rival CoreWeave suffered an even steeper decline, sliding nearly 17%. Shares of cloud hosting provider DigitalOcean and data center operators Applied Digital, Hut 8, IREN, and Cipher Digital retreated 10-16%.
The selloff followed a report from research firm Gartner, as Seeking Alpha reports. Gartner predicted that more than 80% of neocloud providers could cease operating as independent companies by 2030 if AI infrastructure spending continues at its current breakneck pace.
Rising borrowing have costs added to the pressure on CoreWeave shares. Venture investor Chamath Palihapitiya posted a chart on X showing that the yield on CoreWeave bonds maturing in 2032 had reached 15%. He questioned whether the AI infrastructure buildout was creating a private credit bubble. The post drew attention from X owner Elon Musk, the world’s richest person, who responded: “Yikes.”
CoreWeave CEO Mike Intrator said in a memo to employees that the market was acting “irrationally” and stressed that he remained confident in the company’s prospects, Bloomberg writes.
What the Gartner report says
AI providers are expected to spend nearly $1 trillion on AI infrastructure in 2026 and another $6 trillion between 2027 and 2030, Gartner analyst Will Sommer argues. “However, our research indicates that enterprise and consumer AI revenue will be insufficient to support profitable returns on all planned AI capital expenditures during this period,” he noted.
Gartner estimates that AI data center owners need to generate $8.5 trillion in cumulative revenue through 2030 to cover capital spending and financing costs while delivering a 12% return on invested capital. Gartner uses that figure as the minimum acceptable return on investment.
Cumulative AI revenue attributable to data centers over that period is forecast to reach just $3.6 trillion, leaving a $4.9 trillion shortfall. Since most AI-native providers operate asset-light business models, Gartner expects less than half of AI revenue to go to companies that own substantial AI infrastructure. Cloud giants Amazon, Google, and Microsoft are better positioned thanks to their diversified revenue streams, while neocloud providers face greater risks.
If investment continues on its current trajectory, more than $4 trillion in asset value could be exposed to write-down risk through 2032, and the target 12% return on invested capital would not be achieved until the end of 2032 at the earliest, Gartner estimates. Spending on AI-optimized infrastructure as a service is forecast to rise from $66 billion in 2027 to $174 billion in 2030. However, that growth will be insufficient for most AI compute providers to recoup their investments before the current generation of chips is replaced, Sommer warned.
Context
Concerns about the sustainability of neocloud providers’ business models have surfaced before. In September, Rothschild & Co Redburn analyst Alex Haissl assigned “sell” ratings to Nebius, CoreWeave, and hyperscaler Oracle, citing the sector’s structural vulnerabilities and rising borrowing costs for companies working with less-established counterparties.
Moody’s Ratings warned this summer that the AI infrastructure race threatened the credit quality of CoreWeave and major tech companies. It estimated their combined data center lease commitments at $1.2 trillion. Prominent short seller Jim Chanos has also argued that most neocloud providers lack a sustainable business model and a clear path to profitability.
