Neocloud companies CoreWeave and Nebius are signaling strong demand and rising prices for AI chips
CoreWeave said it is contracting computing power at higher prices.
Wall Street is gradually becoming more confident that talk of more artificial-intelligence guardrails won't necessarily slow spending on chips and other hardware.
A Rosenblatt Securities analyst pointed to two developments at neocloud providers - cloud companies that are purpose-built to offer AI services - that he thinks are supportive of a robust spending landscape going forward.
Earlier this week, neocloud company Nebius (NBIS) said that it will raise the prices it charges customers to rent Nvidia's graphics processing units on demand, starting in October. The price increases even cover four-year-old H100s, according to a post on X from Futurum Chief Market Strategist Shay Boloor. H100s are Nvidia (NVDA) chips that are several generations old and less powerful than the newest models.
Fellow neocloud company CoreWeave (CRWV) also said this week that it "has continued to contract new compute capacity at higher prices." In other words, it too has been able to increase the amount it charges for AI computing services.
Despite calls from Anthropic CEO Dario Amodei and other AI industry leaders over the weekend to pace the advancement of AI models, the announcements reflect continuing strong demand and the idea that "pricing is going up" for chips, Rosenblatt analyst John McPeake said. Investors have been concerned about the impact an AI slowdown would have on the amount of spending going toward AI infrastructure.
However, "demand for GPU time is surging to record levels," McPeake said in a Thursday note to clients, referring to the process by which neocloud customers rent computing power for certain amounts of time.
Shares of both CoreWeave and Nebius were down fractionally on Friday afternoon.
CoreWeave on Thursday also announced plans to raise $3 billion through a convertible-debt offering, which McPeake said shows the company "taking advantage" of a strong demand and pricing environment to shore up its balance sheet.
In addition to the convertible-debt offering, McPeake pointed to $3.3 billion from an at-the-market offering, a reference to one in which the company sells new shares, or equity, into the secondary market over time. This altogether adds $6.3 billion in financing to CoreWeave's balance sheet, he said.
In McPeake's view, CoreWeave's equity raises "were inevitable" given its debt-to-market-capitalization ratio of 0.9, which indicates that it is highly reliant on borrowed money.
He noted that while other neoclouds have depended on convertible-debt offerings and customer prepayments, "CoreWeave has been using primarily straight debt." McPeake thinks about a quarter of the company's debt will become convertible after the offering.
CoreWeave looks like "the company that can deliver significant GPU capacity on time and at spec," he said, referring to specification, which indicates a chip's task and performance. The return on invested capital is currently "at historic levels for companies that can deliver," he added.
McPeake estimates that $47 billion of CoreWeave's capital spending is going toward Nvidia's upcoming Rubin GPUs, and that the chips could lead to $40 billion in annualized revenue for the company through shorter-term contracts, or $20 billion from longer-term agreements.
Therefore, he thinks CoreWeave's investments in Rubin make "perfect sense," especially given the chip's useful life "is likely well beyond their six-year depreciation schedules."
-Britney Nguyen
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