AI demand remains strong as financing costs and cash flow begin to constrain expansion

Why is demand growth still not enough to dispel market concerns?

Jefferies says hyperscale cloud providers and Oracle have a combined backlog of approximately 2.5 trillion dollars, up 106% year over year; overall cloud business growth rose to 57% from 48% in the previous quarter.
Meanwhile, the firm expects capital spending in 2027, including that of SpaceX and CoreWeave, to approach 1.5 trillion dollars; the combined free cash flow of hyperscale cloud providers, Meta and Oracle will not turn positive again until 2029.
Jefferies therefore believes the debate is shifting from demand to investment returns and financing, and the industry may see a pause in capacity expansion and capital spending rather than the end of the AI cycle.

According to The Wall Street Journal, bond issuance by new cloud providers has nearly stalled: a CoreWeave bond issued at an interest rate of 9.75% now yields more than 15%; Nebius canceled a high-yield bond offering, turned to customer prepayments and said asset-backed financing remained available.
According to the Financial Times, OpenAI lowered its fundraising target from 30 billion dollars to about 20 billion dollars, and its proposed valuation from 1.4 trillion dollars to 1.25 trillion dollars. After investors reduced their commitments, the first closing may fall short of the target; The Wall Street Journal says 11 billion dollars has been raised so far.
Even large platforms face cash flow pressure. S&P maintained Meta’s AA− credit rating but lowered its outlook to negative, forecasting free operating cash flow shortfalls of 22 billion, 71 billion and 39 billion dollars, respectively, for 2026 through 2028; the forecast excludes the company’s planned 60 billion dollars in equity financing.

Deutsche Bank estimates that SpaceX currently has approximately 1.8 to 1.9 gigawatts of computing capacity online. With approximately 220 thousand and 200 thousand additional GB300 units arriving in November and December, respectively, capacity could reach approximately 2.7 gigawatts by year-end, broadly supporting management’s target of 2.5 to 3.0 gigawatts.
The bank says five contracted new cloud customers represent approximately 1.6 gigawatts of computing capacity and approximately 77 billion dollars in annualized revenue, equivalent to approximately 45 billion to 50 billion dollars per gigawatt. This figure is annualized revenue calculated from contracts and cannot be directly treated as actual full-year revenue.