CoreWeave and Nebius fall 5% as Microsoft spends less

On Wednesday Microsoft reported $45.2 billion of capital spending and finance leases for the quarter. This is up about 30% from a year earlier, but below the analyst average of $50.7 billion. Shares of CoreWeave and Nebius, two neoclouds (cloud firms that rent AI chips), fell almost 5% after hours. Microsoft uses them for data center capacity.

What Microsoft said

Azure revenue grew 48% from a year earlier, much faster than spending. Microsoft says the cause was timing between receipt of goods and payment, and fewer finance leases. The low figure also points to partners that are slow to supply capacity.

The numbers

• Alphabet reported $51.36 billion of capital spending. The analyst average was $55.09 billion.
• Microsoft signed a deal of almost $20 billion with Nebius for compute.

What is the risk

Interest rates are up. Elon Musk says debt markets have almost shut off money. This is for firms with no revenue other than AI data centers. His company SpaceX rents AI infrastructure. Gartner says 80% of neoclouds will close or be absorbed by 2030.

Insight: Microsoft growth rests on the debt of its partners

Microsoft rents capacity from neoclouds, and they must borrow to make it. On 23 October the price of default insurance on CoreWeave was above 11%, a level that investors see as distress. Microsoft can wait for a late partner. The partner cannot wait for its lenders, and the weaker side seems to have the risk. Leaders who buy AI cloud must find out how their supplier pays for its sites.