Shares of top neocloud companies have pulled back this month, mirroring the performance of the largest hyperscalers as investors have continued shorting them. Nebius (NASDAQ:NBIS), IREN (NASDAQ:IREN) and CoreWeave (NASDAQ:CRWV) have dropped by 20%, 33% and 30% from their highest points in May this year.

Investors are Shorting CoreWeave, Nebius, and IREN

Short interest in these companies has continued rising despite their strong revenue growth. Investors have shorted 50.93 million Nebius shares, giving it a short interest of 23.8%. Similarly, CoreWeave and IREN have short interests of 23% and 18%, respectively. This is a sign that investors anticipate these stocks to fall further. 

The short positioning is happening despite their strong revenue growth and large orders from companies like Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT) and OpenAI. Meta Platforms entered a $27 billion deal with Nebius earlier this year, while CoreWeave serves nearly all of the top AI companies. 

As a result, analysts expect that their revenue growth will continue in the coming years as they start fulfilling these contracts. For example, analysts expect that Nebius’ revenue will jump by 550% this year to $3.4 billion, followed by $11.4 billion next year. 

Similarly, CoreWeave’s revenue will jump to $12.6 billion this year, up by 146% from what it made last year. It will then make over $25 billion next year. Its recent earnings showed that its revenue backlog jumped to nearly $100 billion.

IREN, a Bitcoin (CRYPTO: BTC) miner that is pivoting to the AI data center industry, is expected to make $747 million this year and $3.05 billion next year. 

Competition, Financing, and Depreciation Concerns

Investors have several concerns. For one, competition in the industry is soaring, with most Bitcoin mining companies pivoting to the industry. This includes large names like MARA Holdings, Riot Platforms, Bitfarms, and TeraWulf. 

At the same time, their financing is still a major issue, with these companies turning to equity offerings and convertible debt to fund their massive capital expenditures. This Capex will likely continue rising as memory and chip prices continue rising. CoreWeave has a total debt of over $24 billion, while Nebius and IREN are also boosting their debt levels. 

Depreciation is also a big issue for CoreWeave, Nebius, and IREN. CoreWeave’s depreciation jumped to $4.5 billion in the last quarter, while Nebius and IREN’s rose to $844 million and $445 million, respectively. This growth will likely continue as chip makers launch new versions of their semiconductors.

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