Nvidia is offering minimum revenue guarantees to help neoclouds secure financing, while gaining a share of rental revenue.
- Nvidia’s neocloud-inclusive ACIE revenue soared 138% to $40 billion, while partner capacity is expected to reach eight gigawatts in 2026.
- Palo Alto CEO Nikesh Arora warned that neocloud valuations could collapse once supply and demand normalize.
- Nvidia expects the revenue-sharing model to generate billions in recurring revenue by getting “paid twice” on neocloud projects.
Shares of CoreWeave, Nebius and IREN jumped in overnight trading late Wednesday after Nvidia’s blowout second-quarter (Q2) results boosted expectations of an AI infrastructure boom, even as Palo Alto Networks CEO Nikesh Arora warned that neocloud valuations could collapse once supply catches up.
In overnight trading, neocloud stocks advanced, with CRWV up 4%, NBIS up 6% and IREN up 3%. Meanwhile, NVDA rose 6%.
Nvidia Sees Neocloud Capacity Soaring
Nvidia reported adjusted earnings of $2.22 per share on revenue of $96.2 billion, beating estimates of $2.09 and $92.18 billion, respectively. Data Center revenue surged 117% from a year ago to $89 billion. Revenue from Nvidia’s ACIE segment, which includes neocloud, industrial and enterprise customers, jumped 138% to $40 billion, driven partly by neoclouds adding capacity for enterprises, AI startups and sovereign customers.
Nvidia expects its neocloud partners to exit 2026 with eight gigawatts of installed capacity, up from three gigawatts at the end of 2025. “Incredibly, we are seeing demand acceleration even at our scale,” CFO Colette Kress said on the earnings call, adding that Nvidia’s computing capacity is “fully utilized across every cloud we serve.”
According to Kress, customer forecasts indicate the company’s growth could double next year, although supply constraints mean Nvidia expects to deliver about 70% growth. Kress added that non-hyperscaler customers could eventually account for half of Nvidia’s Data Center business.
Nvidia also credited itself with helping CoreWeave, Nebius, and Nscale build “entire infrastructure businesses.” Nebius will be the first customer for Nvidia’s Groq 3 LPX inference system.
Palo Alto CEO Warns Of Neocloud Crash
Despite the near-term demand, Arora said on X: “In two years from now you will be able to buy a neocloud for less than they raise at today.” He also added that neoclouds are a capex and IRR business: “When supply demand finds balance, equity will normalize. Equity to fund Capex only works in a euphoric market.”
Arora said on Palo Alto’s earnings call in June that the data-center boom could continue for “the next few quarters, if not few years.” However, he warned: “When data center growth starts to taper off or plateau, this thing is going to come to roost.” Arora has previously predicted that AI token prices will fall to about one-tenth of current levels. According to Nvidia’s Kress, the Vera Rubin platform delivers 30 times higher throughput per megawatt and 35 times lower token costs than Grace Blackwell Ultra.
Nvidia Targets Recurring Neocloud Revenue
Nvidia said neoclouds have “strong demand pipelines” from diverse customers, but lenders traditionally require a single customer to guarantee most of a data center’s capacity before financing it. To ease this constraint, Nvidia provides a take-or-pay commitment on part of a facility’s capacity, creating a minimum revenue guarantee for lenders. In return, Nvidia receives a share of rental revenue above that floor.
“Independent capital still underwrites every deal on its own merits,” Kress said. “We’re not making loans.” The structure allows Nvidia to monetize the same project twice.
“In this model, we get paid twice, once on the hardware sale and again through the share of rental revenue,” Kress said, calling it a recurring stream layered on top of the equipment purchase. Nvidia said the model could generate billions of dollars in usage-linked revenue over time.
Nvidia Sees Supply Constraints Through FY28
Nvidia forecast third-quarter revenue of $108 billion, above the $103.9 billion consensus, and expects supply constraints through fiscal 2028. “Even though our demand is much greater than 70%, our supply allows us to confidently deliver 70%,” CEO Jensen Huang said.
Nvidia cited more than $2 trillion in cloud backlog and projected that the five largest hyperscalers’ capital spending would reach nearly $800 billion in 2026 and $1.3 trillion in 2027. “Compute is profitable, very profitable today,” Huang said, adding that it translates directly into revenue.
How Do Retail Traders Feel About Neoclouds?
On Stocktwits, retail sentiment for CRWV and NBIS was ‘bearish’ amid ‘low’ message volume, while IREN drew ‘bullish’ sentiment amid ‘high’ chatter. Meanwhile, NVDA attracted ‘extremely bullish’ sentiment alongside ‘extremely high’ message volume.
Over the past year, neocloud stocks have mostly outperformed NVDA, except for CRWV: NBIS and IREN have surged 204% and 72%, respectively, while CRWV has fallen 4%. Meanwhile, NVDA has gained 16%.
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