Citi says Microsoft outperforms neoclouds as AI debt costs rise

Citi analyst Tyler Radke argues that rising borrowing costs, not weak demand, drove the recent selloff in neoclouds like CoreWeave. Radke notes Nvidia H100 rental rates are near records, but CoreWeave's bonds yielded close to 15%. With the 10-year Treasury yield up 30% from March lows, borrowers without investment-grade credit face higher costs. Radke contends these costs will eventually be passed to customers via higher contract prices. In contrast, Microsoft maintains positive free cash flow despite capital spending and does not rely on debt markets, making it less vulnerable to funding risks.