Solidigm pulls IPO as neocloud stocks plunge over 30 percent in October

The collapse in neocloud valuations and soaring credit spreads signal investor alarm over returns on AI infrastructure spending, even as megacap tech maintains investment-grade ratings. With Solidigm pulling its IPO and earnings reports due next week from Alphabet, Microsoft and Amazon, the market will test whether AI buildout skeptics or bullish executives like Nvidia’s Jensen Huang have the stronger case.

• CoreWeave’s credit default swap spreads widened past 11%, a distress level, as neocloud stocks fell over 30% in October.
• Meta reported negative free cash flow of over $2 billion in Q3 and raised full-year capex guidance to $135 billion.
• SK Hynix pulled Solidigm’s IPO citing market volatility, after credit spreads hit record highs across major tech firms.

• 30%+ October losses for CoreWeave, Nebius, and IREN stocks.
• 11% CoreWeave credit default swap spreads, above distress threshold.
• $135B Meta’s raised full-year capex guidance, up from prior $130B target.
• 343bp Oracle’s five-year CDS spreads, a record this week.

The artificial intelligence infrastructure trade faced mounting pressure this week as CNBC reported that neocloud companies stumbled, credit costs surged and a major semiconductor spinoff shelved its public offering. The Nasdaq declined 0.7% for the week, with Alphabet falling 6% ahead of third-quarter earnings due next week, while Microsoft and Amazon each slipped less than 1%. Alphabet, Microsoft and Amazon results, scheduled for release next week, will provide crucial tests of whether the capital intensity of AI buildout is yielding returns that justify investor outlays.

Neocloud stocks plunge as credit spreads widen past distress levels

CoreWeave, Nebius and IREN all fell sharply this week, bringing their collective October losses to well over 30% each. CoreWeave, the largest of the three, saw its credit default swap spreads widen past 11 percent, a level generally viewed as signaling distress, forcing investors to pay higher premiums for protection against default. Yields on CoreWeave’s unsecured notes due 2031 and 2032 topped 15 percent.

The selloff reflects a broader shift in market sentiment. Dave Mazza, CEO of Roundhill Investments, told CNBC’s Squawk on the Street on Thursday that “what investors are doing is throwing every baby out with the bathwater and saying anyone who is a neocloud” will be devalued. The turmoil is not limited to the United States. Elice Group, a South Korean cloud provider, dropped 30 percent in its market debut on Tuesday, and Australia’s NextDC plunged 39.5 percent on Wednesday after the data center operator cut its annual earnings forecast.

Megacap tech credit spreads hit records despite investment-grade status

Meta saw its stock sink 7 percent on Thursday after reporting negative free cash flow of over $2 billion in the third quarter while raising its full-year capex floor to $135 billion from $130 billion. The company also disclosed plans to spend roughly $825 billion over coming years on leases and contracts, with over $450 billion structured as non-cancellable take-or-pay agreements that lock in future spending.

Credit markets are pricing in heightened risk across the tech sector. Spreads on Meta’s five-year credit default swaps reached all-time highs exceeding 124 basis points, while CDS on Nvidia and Oracle touched records at 126 basis points and 343 basis points respectively this week. All of tech’s megacaps have maintained investment-grade ratings despite opening their balance sheets to fund buildouts, including through debt issuance, yet the market is signaling unease about their ability to service these obligations.

SK Hynix cancels Solidigm IPO as market conditions deteriorate

On Thursday, SK Hynix said it is pulling an IPO for its U.S.-based Solidigm unit, which makes NAND and SSD storage for data centers and was acquired from Intel in 2021. “While an IPO was expected to ease investment burdens and expand capacity for shareholder returns, the review has been discontinued in light of market conditions and share price trends,” SK Hynix said in a statement.

The pullback contrasts sharply with the bullish stance of major infrastructure vendors. Nvidia CEO Jensen Huang said this week at a company conference in Berlin that “demand for the neoclouds is off the charts.” Huang told CNBC’s Arjun Kharpal that “the demand of the capital is much greater than the availability of the capital,” adding that “that’s going to get solved.”

The demand of the capital is much greater than the availability of the capital. That’s going to get solved.

Jensen Huang, CEO, Nvidia

Gartner analysts predict that 80 percent of neocloud companies will either cease operations or be absorbed by 2030, reflecting skeptics’ growing concerns that returns on AI investment will not justify the capital expenditures driving buildout.

John Williams, who leads the derivatives practice at law firm Milbank LLP, said investors are seeking multiple hedging approaches beyond credit default swaps. “There’s so much investment going into it that it’s just very appropriate to look for risk management tools, completely regardless of whether you’re bullish or bearish,” Williams said. “It would be crazy for people not to be looking for appropriate risk management tools for it.”

Brian Stutland, portfolio manager at Equity Armor Investments, told CNBC’s SquawkBox Asia that market shocks ripple across sectors. “Can you drop a bowling ball in one part of the pool and not get any waves downstream to the rest of the Nasdaq?” he asked. “I don’t know. I have some concern about that.”

The BlockWest read. The market is pricing credit risk across the entire AI supply chain, from neocloud operators facing existential pressure to megacap hyperscalers locking in decades of take-or-pay commitments. Whether this reflects rational repricing or overcorrection will hinge on whether next week’s earnings reports show that AI capital returns are accelerating or flattening after two years of historically high spending.

Alphabet, Microsoft and Amazon will release third-quarter earnings results next week, providing the first major test of whether the pace of AI infrastructure investment is yielding the revenue growth and margin expansion needed to justify the capital intensity now embedded in tech balance sheets.

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