Treasury Secretary Scott Bessent Downplays AI-Related Neocloud Debt Concerns

U.S. Treasury Secretary Scott Bessent said he is not concerned about mounting debt and higher borrowing costs among AI-focused cloud-computing firms, known as neoclouds, amid investor unease that rattled the AI trade. Speaking on CNBC Wednesday, Bessent said the government monitors the sector and views neoclouds as a small part of the broader AI ecosystem. He pointed to continued financing activity and transactions, including companies such as Meta choosing to fund spending through equity. The debate centers on firms including CoreWeave, Nebius and IREN, which provide specialized cloud capacity for AI workloads. Nebius signed a reported deal with Microsoft worth more than $17 billion in September and announced a five-year Meta contract that could be valued at up to $27 billion in March. But shares of CoreWeave fell nearly 40% in October before partially rebounding from an Oct. 23 low, while the Roundhill Neocloud ETF, which holds major neocloud companies, has dropped 24% over the past month. Investors have questioned whether heavy AI data-center expansion can generate sufficient returns as debt levels and yields rise, with some AI-related debt climbing into double digits. Elon Musk amplified concerns in a Sunday post on X, saying many neocloud providers face “guppy-level death and consolidation” and that debt markets are reluctant to back companies dependent almost entirely on AI data-center revenue. Musk also said SpaceX would not acquire any neocloud companies. By contrast, Nvidia CEO Jensen Huang offered an optimistic outlook, saying demand for neoclouds is “off the charts” and praising their “extraordinary” capabilities. The exchange highlights growing divisions over the durability of AI infrastructure financing, with policymakers emphasizing the sector’s limited systemic weight while markets remain sensitive to borrowing costs and return expectations.