These firms you've never heard of are feeding fears the AI bubble could burst
In this news:
Key takeaways
- Several prominent neocloud infrastructure firms originally started as cryptocurrency mining operations.
- Companies like CoreWeave and IREN pivoted successfully when the artificial intelligence sector exploded in 2022.
- Shares in neocloud firms recently tumbled after Microsoft and Google forecast lower AI spending than Wall Street expected.
Several neocloud firms have their roots in the volatile crypto mining industry, made of companies that generate cryptocurrencies, like Bitcoin.
Crypto miners use some of the same kind of physical infrastructure that is used to develop AI.
CoreWeave was founded in 2017 with a focus on mining Ethereum.
IREN, Core Scientific and Applied Digital also started in crypto mining.
The pivot to artificial intelligence
Their infrastructure left them well-positioned when AI exploded in 2022 with the introduction of OpenAI's ChatGPT.
One outlier is Nebius, which was known as Yandex NV when it was part of Russia's version of Google before splitting off and changing its name in 2024.
Now, the success of these firms hinges on the fate of major AI developers and hyperscalers – even larger data centre operators which neocloud firms often count as key customers.
“There is just an enormous amount of spending getting injected into the system,” said Melissa Otto, head of Visible Alpha Research at S&P Global. “It's an arms race.”
Financial risks and market reactions
And neoclouds have benefitted.
But the trade-off of their model is “greater financial risk” in the face of change, said Forrester VP and principal analyst Charlie Dai.
That includes any adjustments that their Big Tech customers might make to their spending plans.
This past week, when Microsoft and Google forecast less AI spending than Wall Street analysts had projected, shares in several neocloud firms tumbled.
Much is also riding on Anthropic and OpenAI, which are both expected to start selling shares to the public in the months ahead.
If AI proves to be a bubble – and bursts – neocloud firms “are definitely going to face collateral damage,” said Bradley Tusk of Tusk Ventures.
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