Nebius stands out among Neoclouds
Several Neocloud companies have been raising money in the debt market lately. Of the three main players, Nebius holds the best value right now. The reason comes down to a simple ratio: what Nebius has actually booked in real orders, measured against its cost of capital and how much money it has had to raise. Nebius is not chasing as big a dream as the others, so there is less risk behind it.
This debt raising is a natural step at this point in the AI cycle. On the leading edge there is some doubt about whether AI will pay off, but demand itself is fine. What is happening is a reshuffle of the deck. Expect plenty of ups and downs in the near term, though no long-term worry.
Cracks in the "unlimited demand" story
Neoclouds as a group have been under pressure. Part of it is rotation, but there is a deeper signal. When a big buyer of what you sell builds its own business to sell that same thing, it means you do not own that market. Meta is the example here. Look for more of this: large cloud providers selling off their spare capacity. There is still no demand problem, but the idea of unlimited demand is starting to crack. Demand is real, just not endless.
The New York data center moratorium
New York State's pause on data centers is at an early stage. The real question is whether it spreads as a movement across the US. Fears about water use are mostly not backed by facts, but that may not matter. There is a broader backlash against AI, driven by worry over what AI does to society, over how resources get shared, and over electric rates for regular consumers. Some of those concerns are well founded. Most of it is emotion, and emotion can move markets.
Why the water argument does not hold up
The water worry, tied to both the moratorium and TSMC's plan to expand in Arizona where water is scarce, mostly points at older data centers that lack a closed loop. Think of a car radiator: the car does not use up water to keep its engine cool. Most large data centers being proposed today are closed-loop systems that use almost no water. Some use a little for evaporative cooling, but water is not a real concern going forward. There is water use during construction, plus the use of land, plus the big question of where power comes from. So the concern is not completely baseless, yet people badly misunderstand what the real limits are.
Power is the real constraint
The true constraint is power. Where will it come from? A large proposed site in Utah plans to tap into a natural gas pipeline. Federal legislation increasingly pushes builders so that you cannot build a data center unless you bring your own power to the grid, because the grid does not have the power available. That raises hard questions: Does it push up rates for ordinary households? Does it cut their demand? Or does it add to overall power supply? These are very real concerns, unlike water.
Q2 earnings outlook
Earnings this coming season should still be solid. The current negative reaction comes from the reshuffle over who is the customer and who is the seller, not from a bubble bursting. This next earnings cycle is not bubble-burst time.
CoreWeave and memory price hedging
News that CoreWeave is looking at hedging memory prices sat among the mildly bearish signals on the memory trade and helped trigger a sell-off. Any time supply chains are constrained, that can be a concern and a drag. Exploring a hedge is good business practice for the company, and paying attention to it is good practice for investors, because supply chain strain could drag a company's ability to deliver going forward. Supply chains are constrained in that way, so it is a serious matter.
