As Nscale files, Bernstein takes the pulse of AI compute clouds: CoreWeave (CRWV.US) "underperforms the market," IREN (IREN.US) "outperforms the market"

UK AI compute upstart Nscale officially filed its S1 prospectus last Friday. This long-awaited document provides the market with a fresh reference for analyzing the business model, competitive moats, and potential risks of the next-generation compute cloud (Neocloud) sector. Bernstein released a research report benchmarking Nscale against CoreWeave (CRWV.US), IREN (IREN.US), and other core industry players, assessing the sector landscape and investment logic. The analyst maintained an Underperform rating on CoreWeave with a target price of $74, and maintained an Outperform rating on IREN with a target price of $100. The company lists CoreWeave, Nebius, Crusoe, and Lambda as its main competitors, and defines SpaceX as an "emerging large-scale compute service provider." In terms of common characteristics, both Nscale and CoreWeave are founder-led compute cloud companies that emerged from the crypto sector. Both companies have established business partnerships with NVIDIA Corporation, Microsoft Corporation, and Anthropic, and both aim to go beyond basic GPU leasing to expand into broader business territories, with very similar underlying development logic. Scale and Capacity Buildout Differences Compared to the peer companies covered, Nscale is still small in scale, with operating capacity below that of CoreWeave at the time of its IPO. The company currently has approximately 25,000 active GPUs, with only 55 MW of compute capacity in operation. New capacity is mainly built through self-built data centers rather than leasing space from third-party colocation providers. Among its currently operational sites, leased facilities account for 31%, but 76% of its under-construction pipeline is self-built. Among the firms covered by the bank, IREN also follows a self-built capacity approach; by contrast, CoreWeave derives the vast majority of its existing capacity from colocation leasing. The self-built model allows for better control over project economics and asset residual value, but it raises capital expenditure and comes with higher project execution risk. Overall, the bank prefers the self-built model, though it is not a guaranteed money-maker. Geographic Layout Unlike CoreWeave and IREN, which are centered on the US market, Nscale's current business focus is overseas. Although more than half of its under-construction projects are located in the US, once all capacity is built out, its international profile will still be significantly stronger than that of CoreWeave and IREN (Nebius, which is not covered by the bank, also has substantial overseas compute resources). This global layout helps secure sovereign client-related orders. Nscale also believes that compared to the US domestic market, lower overseas electricity costs will constitute its competitive advantage. Financing Strategy Similar to its peers, Nscale uses a mix of equity financing, customer prepayments, equipment leasing, contract-backed debt, and data center project financing to support business expansion. Nscale adopts an asset-backed, delayed-draw debt structure similar to CoreWeave's, but the company is listing at a much earlier operational stage: it currently has only 55 MW of compute in operation, whereas CoreWeave had 360 MW at the time of its IPO. Additionally, the Ward County project will be amortized in tranches based on customer payment progress, achieving better asset-liability matching, but also amplifying the business's sensitivity to project execution. Like many public and private compute cloud vendors, NVIDIA Corporation provides guarantees and backstop support for Nscale. Benchmarking Takeaways and Key Reference Metrics Nscale is another important benchmarking sample in the next-generation compute cloud sector, with a customer base that highly overlaps with industry peers and is similarly exploring the viability of its business model. This prospectus provides the market with more reference data on cost per megawatt of compute, though business models differ across companies, and interpreting backlog data also requires more contextual information. Most notably, the prospectus discloses details of the "delivery-contingent" clauses in Nscale's contract with Anthropic, which is instructive for assessing AI labs' demands in compute leasing negotiations. Nscale's S1 filing does not change the bank's valuation logic for the relevant companies. In the US communications infrastructure sector, the bank gives CoreWeave an Underperform rating with a target price of $74. The current tight supply situation in the data center market still objectively exists, and CoreWeave benefits from this. However, the bank anticipates that as industry compute supply gradually loosens, the company will be among the first and most severely affected. The bank values it at 25.5x EV/EBIT. In the bitcoin mining/emerging AI infrastructure sector, crypto miners hold a planned total power resource reserve of approximately 32 GW, and possess the operational capability to rapidly deliver powered-ready data center shells, putting them in a favorable position to solve the industry's "compute delivery timeliness" challenge. Over the past two years, miners have contracted to deliver approximately 9 GW of power capacity to cloud giants, frontier AI labs, next-generation compute cloud providers, and AI chip companies, with over 20 deals completed and total contract value exceeding $180 billion. The bank's other ratings are as follows: TeraWulf (WULF.US) given Outperform rating, target price $36; Cipher Digital (CIFR.US) given Outperform rating, target price $32; IREN given Outperform rating, target price $100; Core Scientific (CORZ.US) given Outperform rating, target price $32; Riot Platforms (RIOT.US) given Outperform rating, target price $35; CleanSpark (CLSK.US) given Outperform rating, target price $24; MARA Holdings (MARA.US) given Market Perform rating, target price $17.