The neocloud industry shakeout is approaching, and Nvidia stands to lose the most.

Nvidia Faces Neocloud Shakeout After CoreWeave Shares Fall 20 Percent and Firmus IPO Pulls

Meta description: Nvidia watches an AI cloud shakeout as CoreWeave shares fall 20 percent, Firmus pulls its IPO and analysts predict major consolidation by 2030.

Tags: AI cloud, neoclouds, Nvidia, CoreWeave, Firmus

Featured image: abstract technology style server racks with glowing network lines, no people, logos, or text.

Background: New AI cloud providers face a shakeout

Hundreds of up-and-coming AI cloud providers, often called neoclouds, are entering the market. Two executives from the data center and neocloud industries told The Information that only seven to ten of them will still be around in a few years, and several see consolidation as inevitable. Some investors lost confidence in the neoclouds after a week of plunging stock prices and scrapped IPO plans. David Driggers, CEO of neocloud provider Cirrascale, said consolidation is certain and expects deep-pocketed asset managers, along with telecom and fiber companies, to pick up a neocloud here, a neocloud there. Nvidia has a lot riding on how this plays out.

Development: CoreWeave, Firmus and Nscale tests investor patience

The Australian provider Firmus abruptly pulled its IPO, and shares of CoreWeave and its smaller rivals fell about 20 percent, The Information reported. Bloomberg reported that CoreWeave lost a quarter of its market value and that a measure of its credit risk reached a record high. British provider Nscale shows the strain. The Telegraph reported that Microsoft pulled out of a data center deal in Loughton, England, where it had planned to lease 23,000 Nvidia chips, and that utility providers do not expect power at the site until the 2030s. Nscale said its relationship with Microsoft remains "strong and long-term." Bloomberg, citing people familiar with the matter, reported that some investors are pushing to cut Nscale's target market cap from about $30 billion to between $16 billion and $19 billion.

Why Nvidia is exposed: custom builds and financing ties

The damage would not be the same for every failure, The Information reported. CoreWeave mostly leases its data centers, so those sites could find new tenants more easily. Nebius, IREN and Nscale build their own facilities. Financial trouble could stall the buildout, taking Nvidia's sales with it.

For Nvidia, the neoclouds matter because its biggest customers are developing their own chips. The customer segment outside the hyperscalers, which includes the neoclouds, brought in $40 billion in the July quarter. That is 45 percent of Nvidia's data center revenue and more than double the figure from a year earlier. Nvidia is supporting the sector with equity investments, chip allocations, loan guarantees and customer leads. A team led by Jensen Huang's son-in-law, Nico Caprez, is helping neoclouds find sites with available power. One executive said Nvidia changed its loan guarantee terms after larger neoclouds rejected the original structure, which gave Nvidia a share of their future revenue; the newer structure uses shorter terms for a smaller cut.

Outlook: consolidation, oversupply and a Microsoft-sized question

Analysts and competitors doubt many neoclouds will survive. Gartner predicts that 80 percent of independent neoclouds will cease independent operations by 2030. Bernstein estimates that only 35 percent of the data center capacity announced in North America will ever get built, Bloomberg reported. CoreWeave CEO Michael Intrator is also critical. Bloomberg reported that he blamed smaller rivals like Firmus, Lambda and Nscale for the turmoil. A memo to employees said they were pursuing enormous capital raises without the execution, revenue, scale or software solutions CoreWeave delivers to its customers.

Even if all announced projects are completed, another concern remains. One neocloud executive said it is likely that compute supply will eventually exceed demand. On a podcast in late February 2025, Microsoft CEO Satya Nadella argued similarly, saying he expected an oversupply of compute starting in 2027 and that the industry was too focused on supply instead of actual demand. He said the likely result for all these data centers is that prices will fall. Around that time, Microsoft canceled or delayed data center projects in the UK and several US states, including Ohio.

Microsoft is still a key customer for Nscale. According to The Telegraph, more than 40 percent of Nscale's $103 billion in contracted revenue comes from Microsoft. The next test is whether surviving neoclouds can keep power, financing and demand aligned after IPO and market cap expectations slipped.