Neocloud stocks retreat: Microsoft's capex miss signals slower buildout

Neocloud equities declined in after-hours trading on Wednesday following a report from Microsoft that its capital expenditures came in lower than projected. The move reflects investor caution regarding the pace at which infrastructure partners are delivering new data center capacity to the tech giant.

Microsoft disclosed $45.2 billion in capital expenditures and finance leases for the quarter. This figure represents an approximately 30% increase from the same period in the prior year, yet it fell short of the $50.7 billion average estimate provided by analysts via StreetAccount. The shortfall suggests that the company's infrastructure partners are taking longer than anticipated to complete construction projects.

Microsoft depends heavily on neoclouds for compute power as it expands its artificial intelligence infrastructure. The company signed a nearly $20 billion agreement with Nebius late last year for compute services through the 2030s. It is also a primary customer for CoreWeave. These relationships place the neoclouds in a direct line of fire when Microsoft's spending plans adjust.

The sector has faced pressure recently due to rising interest rates, which have raised concerns about the cost of future debt issuance and the potential withdrawal of lenders. In its earnings materials, Microsoft noted that Azure revenue grew 48% year over year, a pace that outstripped the increase in capital spending. The company attributed this divergence to timing differences between receiving goods and making payments, as well as a lower proportion of finance leases in the mix.

Shares of CoreWeave and Nebius dropped nearly 5% after the report, while IREN fell about 3%. Alphabet also reported capex figures below expectations on Wednesday, with the company spending $51.36 billion against an analyst consensus of $55.09 billion. Elon Musk, whose SpaceX rents AI infrastructure to Anthropic and Google, previously predicted on X that more than 200 neocloud companies would collapse, citing tight access to debt markets for firms without independent revenue.

Gartner analysts told CNBC that they expect 80% of neocloud companies to be absorbed or cease operations by 2030. CoreWeave had seen a modest recovery earlier in the week, rising 18% over the previous three trading days. Wolfe Research analysts had projected the stock could rebound to the mid-$70s, but it closed Wednesday at $63.93.

Oracle provided a counterpoint to the sector's weakness earlier in the day. The company issued a strong long-term revenue forecast and stated it would return to positive free cash flow in the second half of next fiscal year. Oracle shares jumped 11% in regular trading before retreating 3% following the Microsoft announcement.