The word of the day is neoclouds, a growing crop of startups that has been making headlines recently as investors fret over an industry-wide stock sell-off and the sustainability of the debt-fueled AI buildout.
So what are neoclouds? Simply put, they are a type of digital infrastructure company that buys graphics-processing units and other chips tailored for training and running large language models. They then lease them to customers-often hyperscalers like Meta, Amazon and Microsoft-who need computing power to build or use AI tools. Essentially, they are like cloud providers, but specifically for AI.
Neoclouds have faced mounting scrutiny recently as investors question whether the massive spending in AI buildouts will pay off. At the same time, many of these companies carry heavy debt loads that become increasingly costly to service in a higher-rate environment.
Nvidia has pumped billions into the neocloud space. The company owns roughly 10% of both CoreWeave and Netherlands-based Nebius. Nvidia has also backed or partnered with other neoclouds including Iren, Firmus and Nscale.
Nvidia CEO Jensen Huang said today that the fundamentals of neoclouds remain strong and that demand is "off the charts," but he noted that what's missing is the working capital to fuel growth.
"The demand of the capital is much greater than the availability of the capital," Huang said in an interview with CNBC at Nvidia's GPU Technology Conference. "That's going to get solved, and that's going to get solved because fundamentally, the most important things are the values that these guys are providing, these companies are providing."
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