The initial half of 2026 witnessed impressive growth for investors in Nebius and CoreWeave, leading AI cloud infrastructure firms. Nebius's stock surged over 200%, while CoreWeave also saw a healthy 39% increase. Yet, the momentum shifted dramatically in July, as investors re-evaluated their portfolios and began to liquidate holdings. Consequently, Nebius's year-to-date gains tapered to approximately 125%, and CoreWeave's growth dwindled to a mere 3% by July 30th. This sudden reversal prompts an important question for market participants: is this a temporary setback, or does it signal a deeper underlying issue for these two companies?
Dissecting the Downturn: Meta's Influence and the AI Cloud Market
Both Nebius and CoreWeave operate as crucial providers in the nascent neocloud sector, delivering specialized cloud computing services optimized for artificial intelligence workloads. The demand for AI computing capabilities is currently experiencing unprecedented growth, compelling companies across the industry to rapidly expand their infrastructure to capture market share. Nebius and CoreWeave are at the forefront of this expansion, mirroring the aggressive growth strategies of other major hyperscalers.
These companies hold significant contracts with leading AI innovators, including Meta Platforms and Microsoft. While tech giants like Meta and Microsoft are actively developing their own data centers, they frequently lease additional computing capacity to maintain operational flexibility and meet fluctuating demands. Given that Meta and Microsoft represent substantial clients for both CoreWeave and Nebius, any significant shift in their strategies could introduce considerable risk to the smaller neocloud providers.
Indeed, a crucial development unfolded in early July when Meta Platforms hinted at a potential entry into the cloud computing business. Previously, Meta's CEO, Mark Zuckerberg, had indicated that such a move would only occur if the company possessed excess computing capacity beyond its internal requirements. This pronouncement understandably triggered widespread concern among investors in CoreWeave and Nebius, whose business models rely on Meta's continued need for external computing resources. The subsequent market reaction saw a sell-off of both stocks. However, a closer examination reveals that investors might be overlooking a critical aspect of Meta's position.
During Meta's second-quarter conference call, Zuckerberg clarified the situation, stating, "We're getting a lot of offers for compute at a significant premium over what we paid for it." This statement suggests that Meta intends to continue acquiring as much computing capacity as possible, as it can generate profits by reselling any surplus. This insight should alleviate some of the initial panic among investors in Nebius and CoreWeave, as the underlying fear driving the sell-off appears to be unfounded.
This clarification bolsters confidence in the future prospects of Nebius and CoreWeave, making their current stock valuations appear more attractive. Since neither company is currently profitable, their valuation is primarily assessed based on sales figures. Nebius, despite appearing more expensive on paper, projects extraordinary growth. Wall Street analysts forecast a remarkable 540% revenue growth in 2026, followed by a robust 238% in 2027, signifying an impressive trajectory. CoreWeave, while trading at a lower valuation, is also experiencing substantial, albeit slower, growth, with analysts expecting 146% growth in 2026 and 99% in the subsequent year. These figures indicate significant potential for both companies.
A common concern among investors regarding these firms is their current lack of profitability. Both Nebius and CoreWeave are heavily investing their capital in expanding their data centers, leading to deep unprofitability at present. While they may eventually establish sustainable business models akin to established cloud computing giants, this transition could take several years.
For those comfortable with the inherent risks of investing in unprofitable, high-growth companies, both Nebius and CoreWeave present intriguing opportunities. However, for investors prioritizing cash-generating assets, other cloud companies might offer more suitable alternatives.
