Microsoft Just Piled Onto the Bad News for CoreWeave, Oracle, and Nebius

Microsoft is a huge customer

Microsoft is both a hyperscaler in its own right and a major customer of the neoclouds. It accounted for 36% of CoreWeave’s revenue during the second quarter of this year. In late 2025, it signed a compute deal with Nebius lasting through 2031 and worth $17.4 billion total. That deal accounts for a significant portion of its $3.35 billion estimated revenue for the current year. It’s unclear how much Microsoft’s deal with Oracle is worth, but it has been an Oracle customer since 2023.

Microsoft isn’t pulling back from neocloud spending entirely. Instead, it’s looking to consolidate vendors and put more focus on building out its own compute capacity. That’s in line with reports that Microsoft is looking to execute more of its own AI workloads using its new custom AI accelerator chip, Maia 300. Its custom silicon is more price-performant relative to GPU systems, and it’s only being deployed in Microsoft’s own data centers. As Maia 300 production ramps up in 2027, Microsoft could shift more of its compute workloads away from third parties and toward its own more cost-effective chips.

While the news might not have an immediate impact on most neoclouds’ financial results, it dampens the outlook for many. Microsoft’s demand for third-party compute might not grow as quickly as some investors had expected.

Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) has also signaled that it sees its contracts with neoclouds as a short-term solution. It has called its plans to increase its spending with third parties a bridging strategy as it builds out more of its own capacity.

Near-term demand for GPUs remains strong, as there’s still a severe shortage in compute capacity. That’s why Oracle was reportedly able to rent out the GPU servers Microsoft abandoned for a 20% premium over Microsoft’s original price. But it’s unclear how long this tightness in compute supply will last.

Just another challenge for neoclouds

Neoclouds are heavily dependent on outside financing to grow their businesses. Securing those loans relies on them inking contracts with investment-grade customers like Microsoft and Alphabet. But investors have grown more cautious about lending new capital to neocloud companies, and potential buyers of their existing debt are demanding a huge risk premium to take it on. The yield on some of CoreWeave’s bonds recently topped 16%. For comparison, Microsoft is issuing $25 billion of new debt at rates between 4.85% and 6.35% with durations ranging from two years to 40 years.

It’s not just that yields are climbing substantially higher for neoclouds’ bonds; some are unable to raise as much capital as they need to keep growing, according to a late-October article in The Wall Street Journal. With the outlook for new contracts from major customers like Microsoft and Alphabet in question, there’s a good reason for investors to be hesitant about buying new debt from neoclouds. That’s especially true as the hyperscalers are issuing tons of new debt themselves. There’s only so much capital available, after all.

While some neocloud stocks look more attractive after the recent AI sector sell-off, there’s still significant risk to investing in them. Investors need to ensure they’re compensated for that risk. Some bondholders are demanding 16% on their money; stock investors need to expect an even higher return for the additional risks they’re taking. Such upside potential is hard to come by, even with neocloud stocks down significantly year to date.

Adam Levy has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Oracle. The Motley Fool has a disclosure policy.