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Why CoreWeave Was Plunging To End the Week Today
Key Points
A major business news outlet reported Blue Owl Capital was having trouble raising capital for its investment in CoreWeave's new Pennsylvania data center.
Blue Owl may instead fund the project itself.
Both Blue Owl and CoreWeave say the project is fully-funded and construction is proceeding on schedule.
Shares of AI neocloud CoreWeave (NASDAQ: CRWV) were falling on Friday, down as much as 13% at one point, before finishing the day down 8.1%.
CoreWeave has been highly volatile since going public about a year ago. This is because its tantalizing growth prospects as the largest neocloud serving the AI build-out are running into the complications of securing sufficient funding and permits to build its data centers.
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CoreWeave's debt investors get cautious
Today, the business magazine Business Insider reported that Blue Owl Capital (NYSE: OBDC), a business development company and lender to CoreWeave, may be having trouble securing financing partners for CoreWeave's new Lancaster, PA data center.
All in all, the data center will cost $4 billion, and while Blue Owl said the project was "fully funded," it was unclear whether it would fund 100% of the project or seek third parties to help carry the load. The underlying message of the Business Insider piece was that lenders may be showing lower confidence in CoreWeave's business, or its ability to get data centers funded and constructed on time.
For its part, Blue Owl denied there were any problems, saying it had considered third parties but that the project was fully funded and on time.
Despite the denial, trust in Blue Capital may not be "airtight" these days, as some investors have publicly expressed fears over the private credit markets. Yesterday, Blue Owl's stock fell after it restricted investors' liquidity and ability to withdraw money from one of its private debt funds, following a massive $1.4 billion asset sale from several of its funds earlier this week.
Yesterday's move followed the last year's unsuccessful attempt to merge one of its private funds with the publicly traded BDC, which was thwarted amid a shareholder revolt.
CoreWeave has also been a punching bag of the financial news media of late. After third-quarter earnings, the stock fell on news of a delay in the construction of one of its data centers, which is being built by a third party. Thus, the reminder that CoreWeave remains dependent on both outside financing and its data center landlords sent shares lower.
Image source: Getty Images.
CoreWeave is to remain controversial in 2026
Fortunately for CoreWeave, the demand for AI compute appears insatiable at the moment. However, the company's high debt load and dependence on funding for its data centers certainly doesn't give it much room for error if that demand picture changes.
Currently, CoreWeave's stock trades just under four times this year's sales expectations, with those sales expected to grow 134% in the year ahead; however, an $11 billion (and growing) debt load, as well as ongoing net losses, make the stock not quite as attractive as its price-to-sales valuation might suggest.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.