[Into the AI World] Musk Pours Cold Water on Jensen Huang's Optimism in Clash Over Neocloud Outlook

Jensen Huang: "Funding shortages are temporary"
Musk: "Small and midsize companies will go bankrupt one after another"
Financial firepower is key; large players could take it all

Two titans have clashed head-on over the future of “neoclouds,” which have emerged as a key pillar of the artificial intelligence (AI) infrastructure market. After Nvidia CEO Jensen Huang sought to dispel concerns about the market and voiced strong optimism, Tesla CEO Elon Musk drew attention with a warning just three days later that “small and midsize companies will go bankrupt one after another.”

Nvidia CEO Jensen Huang. Yonhap News Agency

"Demand is still insane" vs. "Small fry will die"

According to industry sources and foreign media on November 1, Huang appeared on “Morning Call,” an interview program on U.S. business news channel CNBC, on October 22 (local time), and dismissed concerns about debt risks and funding pressures facing neocloud companies as unfounded. “Demand for neocloud services is still unimaginably huge,” he said, stressing that the funding shortages some companies are experiencing are only a temporary financial bottleneck and will certainly be resolved before long.

Neoclouds are emerging specialist cloud providers that buy large quantities of Nvidia graphics processing units (GPUs) and rent them out to startups and other customers, rather than being giant tech companies themselves. Nvidia is a major investor with significant stakes in leading neocloud companies such as CoreWeave and Nebius, as well as a key supplier of their chips, which is why Huang is seen as stepping in personally to reassure the market.

But that optimism was shaken just three days later. Musk posted a stark warning on X, formerly Twitter, that appeared to target Huang’s remarks. In response to a researcher’s post about data centers, Musk wrote, “More than 200 neocloud companies with no independent revenue source beyond AI data centers will soon die like small fry and face massive consolidation.”

His comments drew attention to the harsh reality of financial markets, where funding is drying up for small and midsize data center companies that have yet to generate real profits. Indeed, immediately after Musk’s remarks, shares of major neocloud companies fell across the board on the New York stock market, reflecting the market’s sensitivity.

Tesla CEO Elon Musk. Reuters-Yonhap News

Meta and xAI join the fray... Smaller players lose ground

The stark contrast in their views reflects a structural shift in the AI infrastructure market, which is being reshaped into a playing field for only the largest companies capable of financing a “war of money.” Unlike smaller companies, which borrowed money to buy Nvidia chips and rent them out at a markup without having separate cash cows, Microsoft (MS), Google, and Meta can use their own capital to control hundreds of thousands of chips.

In particular, news in July that Meta was considering entering the “Meta Compute” business by renting out its excess computing capacity to external customers sent global semiconductor and neocloud stocks plunging. Analysts say that if large companies such as Meta and xAI engage in aggressive chip dumping or substantially expand their own infrastructure, smaller rental providers will inevitably lose out in price competition.

Musk’s warning does not mean data centers themselves will disappear. Recently, leveraging SpaceX’s financial strength, he successfully raised $40 billion in large-scale debt (about 53 trillion won) and has been working to secure GPUs for xAI’s data centers. The essence of Musk’s argument is that infrastructure expansion is inevitable, but the benefits will be monopolized by a tiny number of cash-rich Big Tech companies.

In South Korea, too, data center expansion is accelerating in line with global trends. The challenge is that connecting data centers to the power grid is difficult, posing an even harsher survival environment for small and midsize cloud providers than securing sites or procuring chips.

In its latest report, Samjong KPMG noted, “As large-scale power demand, centered on semiconductors and AI data centers, becomes concentrated in specific regions, grid capacity, the timing of grid connections, and the conditions for building transmission and distribution networks have become essential factors in corporate competitiveness.” It added, “When planning future investments, companies should prioritize not only land prices but also the timing of grid connections, which determines whether they can receive power when they need it.”

This content was produced with the assistance of AI translation services.