Stock prices fell 36% during the month, and CDS spreads soared. AI cloud service provider Coreweave (CRWV.US) is in a crisis of confidence

The Zhitong Finance App learned that CoreWeave (CRWV.US) is facing a crisis of confidence, and its stocks and bonds are being sold off. As interest rates soar and concerns about AI infrastructure construction heat up, new, heavily indebted cloud service providers such as CoreWeave are viewed by many market participants as the weakest deal in the AI field.

Barclays credit analyst Andrew Keches wrote in a report to clients on Tuesday: “Market sentiment is clearly negative,” referring to corporate debt in the tech industry. He also emphasized that “the situation in the field of AI is rapidly changing every day.”

CoreWeave went public in March last year, and its market capitalization peaked at about 90 billion US dollars three months later. Today, the company's market value is about 31 billion US dollars, and its stock price fell 36% this month, of which it fell 10% in a single day on Thursday. At the same time, the yield on its unsecured debt is around 15%. CoreWeave's 5-year credit default swap (CDS, or default insurance) interest spreads rose 179% in the past year and rose 39% in October. The latest report was 1,145 basis points, or 11.45%. CoreWeave declined to comment.

This crisis of confidence is spreading across the new cloud services sector. Nebius (NBIS.US) shares fell 33% this month, and IREN (IREN.US) fell 38%. In Australia, shares of data center operator NextDC plummeted 40% on Wednesday after the company sharply lowered its annual earnings forecast. Earlier this month, Australian data center company Firmus cancelled its IPO plan, citing market fluctuations and poor environment.

Nscale, a new British cloud service provider, is also receiving attention, and investors are watching to see if the NVDA.US (NVDA.US) -backed company will advance its IPO. The company filed a listing application with the New York Stock Exchange last month.

The financing environment has been tightened

CoreWeave is the largest new cloud service provider and is closely linked to the US AI market. According to FactSet data, Nvidia is CoreWeave's largest institutional investor, holding about 9% of the shares. Last year, more than two-thirds of CoreWeave's revenue came from Microsoft.

This made the market pay more attention to its financial situation and ability to continue operating. The company has about $20.7 billion in debt maturing by 2030, and an additional $14.9 billion in debt maturing thereafter, and future financing may face higher interest rates.

Credit department sources revealed that due to continued market concerns about data centers facing political resistance, the high-yield bond market has actually been suspended and is not expected to resume until after the midterm elections in two weeks. A source who requested anonymity due to the sensitive nature of the matter said that fixed income investors “hope that licensing and regulatory requirements will be substantially resolved” before they promise to provide financing. Seth Meyer, head of global client portfolio management at Janus Henderson, said in an interview: “Given the recent market turmoil, it is reasonable to suspend financing.”

Estimation of financing requirements

CoreWeave CEO Mike Intrator sent a memo to employees on Thursday to try to calm concerns. Intrator emphasized that the company has multiple funding channels. “Our financing model combines infrastructure mortgage loans, corporate bonds, equity, and customer advances,” he wrote. He also said that as market conditions and capital requirements change, the company has “additional flexibility and can issue additional shares over time.”

By the end of the second quarter, CoreWeave had $5.5 billion in cash and equivalent. The company is expected to announce third-quarter results next month. Analysts expect negative free cash flow to expand to $10.1 billion for the quarter, the highest level since the company began reporting quarterly financial data, according to FactSet data.

Before entering earnings season, one of the issues debated in the market was how much capital CoreWeave needed to raise. Baird software analyst Rob Oliver estimates that the company will need about $30 billion in 2027. He said, “The financial report may involve financing measures to boost confidence, but they will not need this amount until the first quarter of next year at the earliest.”

Bernstein gave a longer-term total estimate in the latest report: to deliver the computing power contracts that have already been signed but not yet delivered, CoreWeave needs a total capital of about 85 billion US dollars, of which 9 billion US dollars can be covered by existing financing arrangements, which means that there is still about 76 billion US dollars of incremental financing to be raised. Bernstein pointed out that the unsecured bond market is still open to CoreWeave, but interest rates are above 15%; interest rates for subsequent financing may be higher.

Another question is: will Nvidia step in if necessary? Nvidia supplied its GPUs to CoreWeave and invested $2 billion in January to acquire about 10% of CoreWeave's shares at a purchase price of $87.20 per share. Although the stock price rose 6% on the day the news was announced, CoreWeave's stock price is currently only $55.60.

Nvidia CEO Hwang In-hoon said last week that CoreWeave “does not require back-up support from Nvidia,” adding that its “capital costs are actually falling.” However, some investors believe that if credit conditions continue to deteriorate, further participation by the chip giant may be necessary. Bernstein believes that when downside risks actually occur, Nvidia may intervene. This may not reactivate CoreWeave's stock price, but it can at least raise the bottom support.

Institutional differences: bullish and cautious coexist

Notably, analysts at Goldman Sachs, J.P. Morgan Chase, and Barclays all released bullish CoreWeave reports this week, stressing the stability of its GPU-backed loans and investment-grade customer lists such as Microsoft and Meta.

Goldman Sachs analysts upgraded CoreWeave's rating from “hold” to “buy,” and emphasized that CoreWeave has market strength compared to many new cloud service competitors. Goldman Sachs analysts wrote in the report: “Not all cloud platforms are the same. CoreWeave is probably in the top one-quarter, or even the top one-tenth, of the industry in terms of performance and execution capabilities.”

However, Bernstein maintained CoreWeave's “underperforming” rating and lowered the target price from $74 to $51, citing concerns about the cost of capital, particularly the ability to finance after switching to short-term contracts. Bernstein also said that CoreWeave's shift to enterprise customers is strategically correct, but there is a financing trade-off: short-term contracts can increase the unit price per megawatt, while enterprise customers help enhance business sustainability; however, such contracts are more risky for creditors and are not conducive to CoreWeave reducing capital costs.

Bernstein also said that other new cloud service providers may have advantages such as own real estate, healthier balance sheets, and more unpromised 2027 production capacity, but this does not completely protect them from industry-level economic risks; if CoreWeave disappears tomorrow, its hosting contracts will be absorbed, and the market will continue to operate.