According to Woofun AI, Citi (C.US) analyst Tyler Radke drew a sharp contrast between Microsoft (MSFT.US) and emerging cloud computing companies (Neoclouds) against the backdrop of intensifying funding strain in the AI sector.
He named Microsoft (MSFT.US) as a top pick, arguing that in a period of rising macro interest rates, Microsoft's solid financial structure makes it far more attractive than highly leveraged Neocloud players such as CoreWeave (CRWV.US).
CoreWeave (CRWV.US) saw its shares plunge 15% in a single day last week, a violent move driven not by weakening demand but by the direct pressure of rising interest rates.
As co-head of Citi (C.US) US software research, Radke noted that although Nvidia (NVDA.US) H100 chip rental prices are near record highs, the yield on bonds issued by CoreWeave (CRWV.US) has approached 15%.
Since March, the 10-year US Treasury yield has risen about 30%, posing a severe challenge for borrowers lacking investment-grade credit ratings. Venture capitalist Chamath Palihapitiya shared a related bond yield chart on X, and Fortune magazine reported the decline in CoreWeave (CRWV.US) shares.
Meanwhile, Oracle (ORCL.US), which has also borrowed heavily to build data centers, saw its shares fall 8.8%.
Data compiled by Woofun AI shows the market now faces structural risks from excessive AI-related debt, with high borrowing costs eroding the profit margins of Neocloud companies. On the industry outlook, research firm Gartner predicts that by 2030, 80% of Neocloud companies will lose the ability to operate independently.
Radke told CNBC that higher borrowing costs will ultimately be passed through to the contract prices Neoclouds negotiate with customers in the future, and he believes the bond market is the key force dictating the current situation.
Although CoreWeave (CRWV.US) claims its existing customer contracts are sufficient to cover all its debt, Microsoft (MSFT.US), with positive free cash flow and no reliance on debt markets, does not need to worry about the pace of AI chip depreciation or financing-related risks.
By comparison, data analytics software company Palantir (PLTR.US) has profit potential, but Microsoft's debt-free profile is more defensive. This stands in stark contrast to Tom Lee's advice to buy Neocloud and chip stocks after Friday's selloff; Radke does not see chip stocks outperforming software stocks as a long-term norm.
Radke's judgment rests on the premise that customers will eventually have to accept higher contract prices. Until that moment arrives, bond investors still hold the pricing power over AI infrastructure financing.
If Neocloud companies cannot pass on high debt costs through contract prices, their business models will face fundamental challenges. As the rate environment continues to apply pressure, tech giants with strong cash flow and no debt burden will occupy a more solid strategic position in the AI infrastructure race.
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