The rapid growth of AI has fueled a wave of new data center companies, but some industry executives are questioning whether certain AI infrastructure startups can sustain their business models.
At a recent data center capital markets event, executives raised concerns about neoclouds — AI-focused cloud providers that lease large amounts of computing capacity and resell access to customers. While the companies have become a major source of AI demand, some leaders worry their financial structure resembles the problems that contributed to coworking space WeWork’s collapse, according to BisNow.
Long-term leases, short-term customers create concerns
Unlike major technology companies such as Amazon, Microsoft, Google and Meta, which typically sign large long-term agreements for data center capacity, many neoclouds rely on shorter customer contracts while taking on significant infrastructure commitments.
Some executives argue this creates a potential imbalance: companies may be locked into expensive, multi-year data center leases while their customers can leave after shorter agreements.
Jeffrey Moerdler, chair of the data center and digital infrastructure practice at Haynes Boone, compared the model to WeWork, which committed to long-term office leases while serving customers through shorter memberships.
The concern is that if AI demand slows or major customers build their own infrastructure, some neoclouds could struggle to maintain their obligations.
Investors seek new ways to manage risk
The uncertainty has made financing more complicated. Traditional data center investors have typically relied on investment-grade tenants, but many neoclouds are newer companies without the same financial history.
To reduce risk, developers are using more customized agreements, including guarantees from larger companies, additional collateral and financing structures backed by valuable AI chips.
Despite the concerns, some industry leaders believe neoclouds will remain important as companies compete for limited AI computing capacity. However, even supporters acknowledge that the sector’s short track records and uncertain long-term demand are forcing investors to take a closer look at each project.
As AI data center demand continues to grow, the industry is now facing a key question: whether neoclouds represent the next major infrastructure opportunity or a repeat of a business model investors have seen fail before.
