Shares in neocloud companies CoreWeave (CRWV), Nebius (NBIS), and IREN (IREN) tumbled on Wednesday morning. This came after they were hit by a double blow: news of Meta’s (META) plan to sell its excess computing capacity and a less bullish outlook on the industry by Bernstein.
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According to Bloomberg, Meta, under its new Meta Compute division, also intends to sell access to various AI models. This puts the social media giant into direct competition with Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL).
However, it could also heap more pressure on the pricing power of CoreWeave, IREN, and Nebius. These companies help tech majors supplement their AI infrastructure. They do this by offering additional GPU (graphics processing unit) capacity to support their massive AI workloads.
Bernstein Compares Neocloud Firms to Other Rivals
Meanwhile, Bernstein issued a new research note on Monday. In it, Bernstein analysts looked at how CoreWeave, Nebius, and IREN’s profit margins and financing costs compared with those of other rivals in the space.
On the one hand, there are traditional data center operators such as Equinix (EQIX), Digital Realty (DLR), and American Tower (AMT)’s CoreSite. These companies follow a co-location model where they sell power capacity on long-term leases. They also serve a broader customer set, including retail clients.
On the other hand, there are emerging AI infrastructure providers such as Mining Digital (CIFR), TeraWulf (WULF), Core Scientific (CORZ), and Riot Platforms (RIOT).
Analysts Flag GPU Depreciation Speed
The analysts, led by five-star researcher Gautam Chugani, noted that neocloud companies make more revenue per megawatt of contracted capacity. However, they are “impacted by GPU depreciation, financial costs, and operating complexity.” These factors affect their profitability.
In other words, neocloud companies’ hardware assets lose value more quickly, they pay more to fund their projects, and they have a more complex operating structure. By contrast, co-location providers have steadier profits and a less complex structure.
Similarly, emerging AI infra players have more predictable profits while committing less capital. These players also benefit as their customers increasingly cover expenses such as taxes, insurance, and infrastructure maintenance.
Which Neocloud Stock Is the Best Buy?
All three neocloud stocks highlighted in this article currently carry a Moderate Buy consensus rating from Wall Street.
However, IREN (IREN) currently leads with roughly 74% upside, according to TipRanks’ Stock Comparison tool. This is based on an average price target of $75.
