If Elon Musk is right that some 200 neocloud companies are at risk of having stranded investments due to financing problems, they will have to do more than transform.
From the Australian Financial Review, October 29:
Investment giant JPMorgan Asset Management says neoclouds such as Firmus, Nscale, and CoreWeave must transform their debt-hungry business models if they are to survive in a higher interest rate environment.
Portfolio manager Oliver Cox, who covers the technology sector in the Asia Pacific for the $US4.8 trillion ($6.8 trillion) money manager, said the neoclouds had to move away from relying on debt to fund their expansion.
“The demand for compute [computing power] is incredibly strong … but does this business model work if rates go to 6, 7, or 8 per cent?” said Cox on the sidelines of JPMorgan’s media summit in Singapore.
“The market is very concerned about the impact of rates and how that filters through.”
Expectations of higher interest rates around the world have added to fears of an artificial intelligence bubble, and investors are worried about the astronomical level of spending on the technology.
Although the US Federal Reserve held rates steady on Wednesday (Thursday AEDT), markets expect another rate rise in December.
In Australia, bond traders are starting to price in the prospect of a cash rate above 5 per cent next year.
The higher borrowing costs have made neoclouds – which rely heavily on debt to buy computer chips, lease space in data centres, and then rent the computing power to big technology customers – among the most vulnerable parts of the AI ecosystem....
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