Neocloud GPU Cloud Companies Face Increasing Difficulties in Raising Capital for Data Centers

Companies providing GPU cloud services, collectively known as neocloud, are experiencing growing difficulties in raising funds to build data centers. These providers, which include CoreWeave, IREN, Nscale, Nebius, and Lambda, typically operate by raising capital to purchase large quantities of GPUs and leasing them to technology firms.

The Wall Street Journal reported that these companies are facing challenges with both debt financing through bond issuance and equity sales via initial public offerings. This shift follows a period of intense interest during the initial artificial intelligence boom. Total funding for the sector exceeded 1 trillion dollars between 2025 and 2026, leading capital markets to question whether these firms can generate sufficient revenue to repay such massive debts.

Lambda has reduced its valuation target for its final funding round before an initial public offering, lowering the goal from 14.5 billion dollars to 13 billion dollars. Nscale, which serves OpenAI, may postpone its initial public offering from November to December due to unfavorable stock market conditions. The valuation for that offering may decrease from 35 billion dollars to 30 billion dollars, and the company is also encountering issues raising funds for a new data center in the United States intended for Anthropic.

CoreWeave is seeing increased borrowing costs, as bonds issued by the company with a 9.75% interest rate are now trading on the secondary market at a 15% rate. Nebius, formerly the parent company of Yandex before separating in 2024, has avoided issuing bonds thus far. After receiving investment from NVIDIA and securing clients such as Microsoft and Meta, the company is instead seeking alternative funding methods, including requesting advance payments from customers to maintain business liquidity.

This financial pressure is also affecting large hyperscalers. Alphabet saw a significant stock drop despite growth, while Intel shares fell 29% despite a 21% increase in revenue, as investors expressed concern over expenses. In contrast, these larger entities maintain strong standing in the bond market due to diversified revenue streams. Meta, for example, raised 97.5 billion dollars through equity sales, and such large firms generally benefit from lower interest costs on bonds compared to neocloud companies.

Reported by Blognone.