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CoreWeave (NASDAQ:CRWV), IREN (NASDAQ:IREN), and other top neocloud companies remain in a bear market after falling as much as 70% from their highs this year. CRWV ended the week at $46.40, down 66% from its year-to-date high, while IREN has dropped 70%. The sell-off may continue as Microsoft (NASDAQ:MSFT) reassesses its computing deals.

Microsoft is Reassessing its AI Deals 

There are signs that top hyperscalers are hitting a limit on their data center requirements. Microsoft, a top client for CoreWeave and IREN, has already started turning off its leased space from Oracle (NYSE:ORCL). 

According to Bloomberg, the company is also reassessing its relationships with neocloud providers, citing project delays and rising costs. It is already tightening oversight of projects from companies such as Nebius (NASDAQ:NBIS), IREN, and Nscale. Most notably, its top executives are considering a halt to new deals.

These actions may lead to more neocloud weakness since Microsoft is one of the biggest customers. It has inked deals worth over $80 billion in the past few years. 

At the same time, Meta Platforms (NASDAQ:META) is exploring leasing its extra space to other companies in the AI industry. Like Microsoft, Meta is another top customer of these companies. 

AI companies are also facing some cost challenges. OpenAI, which is another large customer, is exploring ways of cutting costs, meaning that it may tweak its contracts with neoclouds.

A key challenge is whether hyperscalers will renew their leases when the contracts with the hyperscalers end. Microsoft has already started scaling down its relationship with Oracle, noting that the Nvidia (NASDAQ:NVDA) GPUs in the deal are outdated. 

Competition in the Neocloud Industry is Rising

Meanwhile, the neocloud industry is getting highly competitive. Most Bitcoin (CRYPTO: BTC) mining companies like Riot Platforms, MARA Holdings, and Core Scientific are pivoting to the space.

Other independent companies like Lambda, Firmus, and Nscale are also in the industry. Most notably, Elon Musk’s SpaceX (NASDAQ:SPCX) has also moved to the industry, and recently raised $40 billion to expand its operations. 

All this is happening at a time when Gartner is warning about future impairments. In a recent report, the company said that neoclouds will be the most exposed to impairments in late 2030. The report identified $3.5 trillion in potential impairments that could occur.

Looking ahead, CoreWeave will publish its earnings report next week. Benzinga data shows that analysts expect the earnings report to show that its revenue jumped by 159% in the third quarter to $3.54 billion.

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