Elon Musk announced that SpaceX has secured $40 billion in financing to purchase artificial intelligence chips. But in the same post on X, he also included a warning that sent the shares of several technology companies tumbling. According to him, more than two hundred smaller companies that rent out computing power for AI face a harsh shakeout, and only a small fraction of them will survive.
A loan for chips arriving next year
SpaceX borrowed the money to purchase graphics processing units from Nvidia. These chips, known by the acronym GPU, were once used primarily to render graphics in computer games. Today, they power language models and other artificial intelligence systems. Those with enough of them can train and operate AI or rent their computing power to others.
In a follow-up post, Musk clarified that the financing consists mostly of prepayable debt. SpaceX can therefore repay the loan before it matures. The chips are expected to arrive at the company in the first and second quarters of next year, so according to Musk, they will not have a significant impact on results in the current quarter.
During a call with analysts on October 20, the company's management revealed that it was negotiating with several groups of lenders. Five days later, Musk announced that the deal was done.
SpaceX got the money, others did not
Musk devoted a substantial part of the post not to the loan itself, but to which companies can currently access funding at all. Over the past few weeks, debt markets have almost completely cut off funding for any company without significant revenue independent of AI data centers, he wrote.
According to him, SpaceX succeeded because it has an investment-grade credit rating. This tells lenders that the company is a reliable borrower. It also has revenue from the Starlink satellite internet service and from launching rockets into orbit.
Paradoxically, artificial intelligence already accounts for the largest share of SpaceX's revenue. The AI division generated $7.6 billion in the third quarter, more than Starlink and the rocket business combined and over half of total revenue, which approached $15 billion. Lenders therefore did not lend to a company that avoids AI. They lent to a company for which AI is not the only source of revenue. Starlink had more than 13.5 million residential subscribers at the end of September, and most smaller competitors do not have that kind of cushion.
SpaceX genuinely needs the money. In the third quarter alone, it spent nearly $20 billion on equipment and infrastructure, despite having cash from this year's stock market debut.
Neoclouds and extinction
Musk then turned his attention to so-called neoclouds. This term refers to smaller companies that purchase AI chips and rent their computing power to customers over the internet. This means that more than 200 neoclouds face a guppy-like extinction event and consolidation; some will survive, but not many, he wrote. He thus compared their fate to small aquarium fish dying off in large numbers. By consolidation, he means that stronger companies will absorb weaker ones or that smaller companies will merge to stay afloat.
However, Musk is not talking about a lack of customers. During the October call with analysts, he said that he had been unable to find available chips from other providers and was not concerned about demand. We could rent out our computing power several times over, he said. Customers therefore want more chips, but only some suppliers can still afford to buy them.
Musk is a competitor, not a buyer
His words have another dimension. SpaceX intends to use roughly half of its computing power for itself and rent out the other half. This makes it a direct competitor to the companies whose demise it is predicting.
When speculation appeared on X that Musk was deliberately driving down competitors' shares so he could buy them cheaply, he dismissed it in a few words. SpaceX is not buying any neoclouds; it makes no sense, he replied. That may not be good news for smaller companies. A competitor with spare capacity does not need to buy a struggling company when it can simply lure away its customers.
Bonds cracked first
The stock market reacted to the warning immediately. CoreWeave and Nebius, two of the best-known companies in the industry, were hit the hardest. Before the market opened on Monday, CoreWeave was down just under 3 percent and Nebius was down 3.5 percent. The decline followed several weeks of pressure, with CoreWeave shares losing more than 37 percent over the past month.
However, the problems had already surfaced earlier in the bond market. The yield on CoreWeave's unsecured bonds approached 15 percent at the beginning of the month. Put simply, the yield indicates the reward for risk that investors demand from a company. The higher it is, the less confidence they have in it. Nebius shares fell 10 percent. Research firm Gartner estimates that more than 80 percent of these providers will cease operating independently by 2030.
A similar story has already played out once before. During the bursting of the telecommunications bubble, the U.S. Federal Deposit Insurance Corporation, or FDIC, warned of mounting bankruptcies and unpaid debts. According to the agency, the causes were a slowing economy, falling stocks, and a sudden pullback in financing. The difference, according to Musk, is that this time customers still want the service.
Not everyone believes the panic
Some analysts remain calm. Tal Liani of Bank of America described the sell-off in CoreWeave shares as a matter of sentiment and maintained a price target of $140 per share. This is not about the company's actual financial performance, he said. Seeking Alpha noted that the credit freeze Musk wrote about has not yet been independently confirmed. However, yields of around 15 percent at the industry's best-known company are difficult to explain by poor sentiment alone.
SpaceX shares edged higher before the market opened on Monday. However, they remain well below their annual high of more than $225.
Sources: cnbc.com and finance.yahoo.com
