Dear Reader,
Elon Musk is saying publicly that most of the NeoClouds will go bankrupt.
A lot of you own shares in NeoCloud companies, and a lot of you wrote in.
We’ve never recommended a NeoCloud here.
But clearly many of you own them, so today I’m going to answer your questions.
I’m not inside the man’s head.
But I will tell you it’s a very self-serving thing for him to say.
While we were all watching SpaceX do rockets and Starlink, it became, almost overnight, one of the biggest NeoCloud companies on the planet.
The 161% year-over-year revenue growth SpaceX recently reported was largely NeoCloud.
About half of its revenue is now NeoCloud.
SpaceX has become a NeoCloud company.
So it’s in his interest, as the champion of all gaslighting, to sow doubt so SpaceX wins those contracts.
And what makes it effective is that part of it is true.
He’s saying pure NeoCloud providers are in trouble because they have no diversified business model.
Companies with multiple revenue streams that also do NeoCloud have better survival odds.
With Musk, everything is complicated.
There’s a little truth in there and a lot of propaganda.
How I Ranked Them
So I took the last couple of days to rank the independent public NeoClouds, from strongest to weakest.
One caveat.
Whenever I rank anything, I look at cash flow.
Nobody in this group generates positive free cash flow.
So this ranking is about runway.
How much cash they have in the bank, what it costs them to borrow, and how their debt is structured.
I look at many of them as startups.
And any one of them could hire a new CEO who’s a real idiot and drive right off the cliff.
But as a snapshot today, here is the order.
1. Nebius (NBIS)
Nebius is clearly the strongest, no doubt about it.
It has the lowest leverage in the group.
As of June 30th, it had $8.5 billion in debt against $8 billion in cash.
That’s about a dollar of cash for every dollar of debt.
It also expects billions of dollars in customer prepayments.
It borrowed through cheap convertible debt at an interest rate of 2.3%, compared to CoreWeave’s 8.3%.
The catch is that it’s convertible into stock.
So at some point you’ll likely see a dilution event when people convert.
But at least Nebius won’t choke on high interest the way CoreWeave likely will.
It also owns its facilities, so it can borrow against those assets, which it has already shown it can do.
2. IREN (IREN)
IREN is a close runner-up.
It has about $7.6 billion in borrowing against $5.9 billion in unrestricted cash, plus $1.7 billion in restricted.
Its debt costs just 1.7%.
Most of it is convertible, so it will create dilution too.
Like Nebius, it owns the land and the power.
And power is the scarce asset in this cycle.
3. Hut 8 (HUT)
Hut 8 sits in the middle of the pack.
It’s fairly sensibly financed.
Its project-level financing looks sturdier than CoreWeave’s mountain of debt.
4. CoreWeave (CRWV)
This is the one I get asked about most.
CoreWeave has the biggest revenue and by far the weakest balance sheet.
It has $5.5 billion in unrestricted cash against $35 billion in debt.
That’s more than six times as much debt as cash.
Its net debt to EBITDA is 12.3.
Its bonds have spiked to 15%.
And unlike Nebius and IREN, it doesn’t own most of its data center sites or power, so it can’t borrow against hard assets.
It’s the pure play that benefits the most if demand holds.
If the debt markets shut down, as Musk has been warning, these guys get crushed.
The Shakeout Is Real
The shakeout Musk is describing is real.
It’s probably worst for the roughly 200 private, venture-funded NeoClouds with no contracted backup.
Those entrepreneurs building little data centers in Oklahoma and places like that?
I wouldn’t be too bullish.
I wouldn’t gamble on who survives the NeoCloud shakeout.
I would instead invest in the company that owns the power every one of them needs.
How Seriously Should We Take Musk?
Musk is a serious competitor and a professional gaslighter, and he’s in the market trying to win contracts.
Put yourself in his seat.
Don’t go to CoreWeave.
Don’t go to those guys.
They need the debt markets, and the debt markets are going to shut.
Come to SpaceX.
We have multiple revenue streams, so we can borrow.
What he’s trying to create is a run on the bank.
He’s acting as an agent in the destruction he claims to be prophesying.
It’s very clever.
If I were him, I’d be doing the same thing.
I’d sow doubt with the customers deciding between SpaceX and CoreWeave.
I’d sow doubt with the bankers lending to CoreWeave.
I’d sow doubt with the bond investors in the secondary market.
And I’d sow doubt with all those private entrepreneurs building data centers around the country.
He’s trying to bring all of that business to SpaceX.
That’s the kind of killer you want running SpaceX.
Have a wonderful day.
I’ll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine