Turmoil hits AI buildout as neoclouds face pressure, credit risks mount and Solidigm pulls IPO
Stock slumps, pulled IPOs and rising spreads on credit default swaps this week sets stage for hyperscaler earnings.
Key points
- Shares of neoclouds CoreWeave, Nebius and IREN fell sharply, with October losses above 30% each.
- CoreWeave's CDS spreads widened past 11%, a level generally viewed as distress.
- SK Hynix pulled the IPO of its Solidigm unit, citing market volatility.
The AI infrastructure trade had a difficult week, with neocloud shares falling sharply, credit default swap spreads rising and SK Hynix cancelling the planned IPO of its U.S.-based Solidigm unit. The Nasdaq ended the week down 0.7% after dropping on both Thursday and Friday.
CoreWeave, Nebius and IREN all fell sharply, pushing each of their October losses well above 30%. Spreads on CoreWeave's CDS widened past 11%, a level generally seen as distress, and yields on its 2031 and 2032 unsecured notes topped 15%.
Pressure beyond the US
South Korea's Elice Group fell 30% in its market debut on Tuesday, and Australia's NextDC plunged 39.5% on Wednesday after cutting its annual earnings forecast. Gartner analysts predict 80% of neocloud companies will cease operations or be absorbed by 2030.
Nvidia CEO Jensen Huang remained bullish, saying at a Berlin conference that "demand for the neoclouds is off the charts." He told CNBC that demand for capital exceeds its availability and that this will be solved.
demand for the neoclouds is off the charts
— Jensen Huang
Mega-caps show jitters
Meta's stock fell 7% on Thursday after it reported negative free cash flow of over $2 billion in the third quarter and raised the floor of its full-year capex to $135 billion from $130 billion. Spreads on Meta's five-year CDS reached all-time highs above 124 basis points, while Nvidia and Oracle CDS also hit records.
SK Hynix said it discontinued its review of the Solidigm IPO "in light of market conditions and share price trends." Milbank LLP's John Williams said it is appropriate for investors to look for risk management tools regardless of whether they are bullish or bearish.
