Nebius and CoreWeave stocks pulled back in the past few days as investors book profits and as their short interest jumps. CRWV stock retreated to $95, down by 32% from its highest point in May. Similarly, NBIS stock has dropped by nearly 20% from the year-to-date high.
Nebius and CoreWeave growth is accelerating
Neoclouds have become some of the fastest-growing companies this year as demand for computing has soared. This growth is demonstrated by the massive deals they have made in the past few years.
For example, Nebius Group recently inked a major $27 billion deal with Meta Platforms (META). CoreWeave also inked major partnerships with companies like Microsoft, Meta Platforms, and Anthropic.
These deals are fueling their revenue growth. For example, the most recent results shows that Nebius made $399 million in revenue in the first quarter, up by 684% in the same period last year. Wall Street analysts expect the growth to continue, with the annual revenue coming in at $3.4 billion this year, and $11.2 billion next year.
CoreWeave, on the other hand, said that its revenue jumped to $2.07 billion, up from $982 million last year. Analysts predict its annual revenue will surge by 146% this year to $12.67 billion and $24 billion next year. Its revenue backlog jumped to nearly $100 billion.
Investors are shorting NBIS and CRWV
Still, despite these numbers, there are signs that investors are shorting these companies. Nebius has a 20% short interest, while CoreWeave has 14%. Other companies in the neocloud industry, like IREN, Bitfarms, and MARA Holdings are also seeing high short interest.
There are a few reasons for this. First, these companies are seeing high depreciation rates. The most recent numbers showed that Nebius had a depreciation and amortization of $210 million, up by 332% from the previous year. CoreWeave’s D&A costs rose to $1.15 billion, 50% of its total revenue.
A major concern is that the GPUs and servers they are spending too much money on these days will ultimately lose their value once NVIDIA launches new ones.
The other main reason for the increased short-selling is that these companies have boosted their borrowing recently. Data shows that Nebius has boosted its total debt to over $9.5 billion. CoreWeave has borrowed more aggressively, with its debt soaring to over $25 billion.
The companies have also been highly dilutive as they seek to boost their capital expenditure. For one, a large portion of their total debt load is through convertible bonds, which ultimately become equity over time.
Competition has become a big issue in the industry as more companies have launched similar products. Most of this competition is coming from Bitcoin mining companies, which have expanded to the industry. This includes companies like MARA Holdings, Riot Platforms, and Cipher Mining.
On the positive side, CoreWeave and Nebius have become virtual duopolies in the industry, which will help them continue getting new clients over time.
