The NeoCloud Trade Could Be Much Worse Than You Think

**Martin** (0:00)
You need to differentiate whether the market is puking or if just your companies are not doing well.

**LGD Set** (0:07)
What's up, everybody? It's LGD Set here, and welcome to Milk Road AI, the daily AI show that only gets bearish when it's convenient, and we know the YouTube comments might kind of hate us for it. Today is July 28th, 2026 The market is nuking. It's very unhappy, and conveniently, we've been planning the show for a while, but Martin has a presentation today for us about NeoClouds to kind of counter Melvin's episode from a few weeks ago, giving more of a bearish take, not necessarily a totally bearish take, but basically showing the economics of NeoClouds and how they actually have to finance all those gigawatts that they are promising that they can do, and what happens once those chips kind of crap out in five years, because I didn't know this, but chips only last a couple of years. So it turns out that may be a reality for these NeoClouds, and that is basically what today's show is going to be about. We're going to look at that, their economics, and then it is a red day, so Martin is going to take us through how he manages days like today, what to do with your portfolio on days like today, because I think that that is also important. If you want to get access to Martin's portfolio, how he's managing this, you can pay a dollar for Milk Road PRO at the link below, and a reminder that our podcast today is free, and it wouldn't be possible without our partners at Securitize, the regulated Rails for Tokenization, and BitGet Stocks 2 with Real Liquidity, Real Dividend. Keep an ear out later in the show for a message from them. What's up, Martin? Tell me what we are talking about today.

**Martin** (1:25)
Hello, sir. Well, I want to talk about CapEx because, you know, it's summer 2026 and all earnings goals are about CapEx. And so some companies are reporting huge CapEx, even though their earnings are just really good. Let me actually share the chart. You can see the Google's numbers for the Google Cloud revenue and operating income. So this looks like really, really good. I mean, it looks like it's accelerating. And so you would expect that when Google announced their Q2 earnings and you would see those numbers, you would expect that Google will just shoot to the moon. But in fact, you know, Google dropped significantly.
And the reason is because they increase their CapEx estimates for the future. And it results also that in Q2, they free cash flow was negative. And so the market is punishing them pretty heavily. And it's underserved, in my opinion. And the one point I want to make here is that market is punishing some players, like, you know, I just showed Google, also Tesla.
But then there are some players that are still getting that AI label, very hot, sexy narrative. And they are burning a lot of money as well.
But market is not punishing them for burning a lot of money and also increasing capex year over year. So that's what I want to talk about today.

**LGD Set** (3:07)
Right. So the market's being gentle with the, maybe the non-hyperscalar names who have been more, you know, hot picks this year.
Instead of boring old Google, boring old Google people are happy to dump. But the more trendy picks people are, the market is happy to hold. But you're basically saying that the bearish argument is the same for Google that it should be for the other companies.

**Martin** (3:34)
Yes. Yes. Okay. Okay. That makes a lot of sense. This is Core Weave, which is the biggest NeoCloud today.
And here is just how much money they are going to burn over the next few years.
And you can see on the very chart at the top that their EBITDA, how much money they are going to make, is increasing, which is great.
Like as an investor, that's what you want to see. But then if you deduct the CapEx thing, because they need to finance all the GPUs that they are buying, then the story gets less interesting, I feel like. So you can see here that this year, the free cash flow is going to be negative 28 billion. And it's improving year over year, but they are not going to bring any cash home until 2031
And at that point, like you can see here, by 2030, they are going to burn over 100 billion in cash. And so this is very capital intensive company. And market is not, well, they are down as well, like 40% since their highs, but market is not really punishing them for capex. They're punishing them for some other things, but when they report their earnings, market doesn't really bother about those capex because they see that revenue is growing and they say like, okay, that's great. So, you know, let's just buy more Corvive, more Nebius. But my question is, what is the difference here? Like why is market punishing Google or Tesla, but it's not punishing Corvive or Nebius? And like, I need to be honest, I'm still holding Corvive and also Nebius. I just want to be aware what I'm holding and what might happen at some point. And so, I'm still building an evaluation model because I struggle to see what's the fair evaluation for these NeoClouds and how they should be valued in the first place. And like later on, I'm going to show you my mental model for how I'm thinking about the business economics that all these NeoClouds are doing today.