CoreWeave, IREN sink after midterms as data center curbs loom

The midterm results put three Tier-1 data center markets -- Texas, Georgia and Ohio -- under incoming Democratic governors who plan tighter environmental restrictions on new data centers. That prospect split the AI infrastructure trade: hyperscalers like Amazon and Microsoft, which spend hundreds of billions annually, rallied on expectations of lower near-term spending, while neoclouds CoreWeave, IREN and Nebius sank.

The divide reflects different business models. Neoclouds sell raw GPU processing power and grew faster than hyperscalers, but they are unprofitable and highly leveraged. Many began as crypto miners or, in Nebius's case, the owner of Yandex, and repurposed their GPUs. Those flaws were forgivable when rates were low, but the Iran war and persistent inflation drove the Fed to raise rates this September, chilling the market and boosting borrowing costs.

CoreWeave and IREN also have significant Texas exposure, where governor-elect Gina Hinojosa has called for a temporary suspension of all new data centers. Nebius is better diversified across Europe and the U.S. and has no direct exposure to those three states. Nvidia's stakes in CoreWeave and Nebius and warrants in IREN may provide a backstop, and all three could issue shares to reduce debt reliance, but the stocks are likely to remain under pressure until rates decline and data center deployment resumes.