Musk predicts ‘guppy-level death’ as SpaceX closes $40B GPU deal

If you own CoreWeave Inc. (CRWV) or Nebius Group N.V. (NBIS), Elon Musk’s X feed has become required reading. His posts have jolted both stocks more than once this month.

On Sunday, Oct. 25, he posted again, and this time he had a SpaceX deal to show off.

Musk wrote on X that Space Exploration Technologies Corp. (SPCX) has closed $40 billion in debt to buy GPUs, the chips that run AI models. Then he turned to neoclouds, the smaller companies that rent those chips out.

“That means the 200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many,” he wrote.

His reasoning had nothing to do with demand. “As of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn’t have substantial revenue independent of AI data centers,” Musk wrote.

SpaceX got its money, he added, because it is investment grade and earns revenue from Starlink and rocket launches.

Also read: Bank of America sends SpaceX stock investors strong signal

SpaceX passes a lending test most rivals now fail

SpaceX’s Super Intelligence unit, its AI business, brought in $7.6 billion in third-quarter revenue, according to the company’s results. The AI unit made up more than half of SpaceX’s sales.

So lenders didn’t back SpaceX for avoiding AI. They backed it because AI isn’t all it has.

That is why I read Musk’s warning as a verdict on concentration, not demand. Starlink ended the third quarter with 13.6 million consumer subscribers, SpaceX reported. Most neoclouds have no comparable business to lean on if a major customer walks away.

Even with that cushion and its IPO cash, SpaceX chose to borrow. The company spent $19.6 billion on capital expenditures in the third quarter alone, according to its results. Musk said most of the new debt is callable, meaning SpaceX can pay it off before it matures.

SpaceX’s AI unit brought in $7.6 billion in third-quarter revenue, more than half its sales, as Elon Musk warns that neoclouds face a credit squeeze.

Walter Cicchetti / Getty Images

SpaceX competes with the neoclouds Musk sees failing

On SpaceX’s Oct. 20 earnings call, Musk answered a question from Goldman Sachs analyst Eric Sheridan. He said SpaceX aims to use roughly half its computing power internally and rent the other half to outside customers.

That makes SpaceX a direct rival to the companies he expects to fail.

He also said he couldn’t find spare GPUs at other cloud providers and didn’t expect a demand problem. “We could rent out our compute several times over,” Musk said. Alongside the Oct. 25 post, the message holds together: Customers want more chips, but only some sellers can still pay for them.

On the same call, SpaceX told J.P. Morgan analyst Doug Anmuth that it was in talks with several pools of debt capital. Five days later, Musk said the $40 billion deal had closed.

Musk also says he isn’t shopping. He replied to a thread that suggested he was talking down the stocks to buy them cheaply. “SpaceX is not buying any neoclouds. Pointless,” he wrote, according to Business Insider.

I believe him, and that worries me more for the smaller players. A rival with spare capacity doesn’t need to buy a struggling neocloud when it can win its customers.

Wall Street calls the sell-off sentiment, not fundamentals

Neocloud stocks slipped again on Monday, Oct. 26, after Musk’s post, extending weeks of pressure, CNBC noted.

The Oct. 26 premarket losses were modest, with CoreWeave down 2.7% and Nebius down 3.5%, according to Yahoo Finance.

Bond markets cracked first, as yields on CoreWeave’s unsecured debt neared 15% and Nebius stock fell 10% on Oct. 14.

Forecasts point the same way, with Gartner expecting more than 80% of neocloud providers to stop operating independently by 2030.

Not everyone buys the panic. Bank of America analyst Tal Liani called the CoreWeave selling sentiment driven and kept his $140 price target on the stock, Yahoo Finance reported. “This is not about fundamentals,” he said.

Seeking Alpha noted that the credit freeze Musk described has not been independently confirmed. Still, bond yields near 15% on the sector’s best-known name are hard to dismiss as mood alone.

SpaceX shares edged higher in premarket trading on Oct. 26. The stock remains well below its 52-week high of $225.64. For holders, the test comes next year, when these chips arrive.

More SpaceX:

Goldman Sachs revamps SpaceX stock estimates before crucial earnings test

Musk called Anthropic ‘evil’; SpaceX’s deal with it nearly doubled

Morgan Stanley doubles down on SpaceX stock verdict for investors

Credit, not chips, now decides who survives

For most of this boom, the scarce input was chips. Musk’s posts suggest it is now credit, which flows to companies with a second business to lean on.

In a June 2002 update on the telecom bust, the FDIC flagged mounting bankruptcies and defaults. It blamed a slowing economy, falling stock prices, and a sudden pullback in financing. Consolidation, it said, had to run its course before profits recovered.

Musk is describing that same credit squeeze, with one difference. He says customers still want what the neoclouds sell.

The survivors this time won’t necessarily have the best chips. They will have a second business that lenders trust, and that list is short.

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