Borrowing money and burning money without making a profit! "Huida's son" CoreWeave becomes the trigger for AI selling

Philadelphia Semiconductor fell for eight consecutive trading days, setting a record for the longest decline since October 2008. CoreWeave, a new cloud service company (neoclouds) known as "Huida's son", was one of the fuses that triggered this wave of panic selling in artificial intelligence (AI) stocks.

Reuters reported that the stock price of CoreWeave, in which Huida holds 10% of the shares and has a market value of US$39 billion, began to plummet after the third-quarter financial report of the ultra-large cloud service company hinted that data center plans will be delayed and capital expenditure growth will slow down.

Worried investors point to new cloud companies such as CoreWeave, arguing that they are the most vulnerable link in the AI ​​ecosystem because of their massive debt borrowing to finance the chips, land and energy needed for data centers that will only generate revenue in the future.

CoreWeave shares have plunged nearly 25% over the past week, while the yield on its bonds maturing in 2030 jumped 500 basis points to nearly 16%.

Although CoreWeave CEO Mike Intrator told employees that the market can sometimes "misunderstand and react irrationally," the company still has the advantage of strong demand for AI. However, investors are concerned about its $50 billion debt and its deep revolving financing arrangements between Huida and customers such as Meta and OpenAI.

Jame Athey, fixed income portfolio manager at Marlborough, said, "The problem is the huge interconnectedness, not only the circular financing, but also the fact that these assets are all staked in the same place and the same portfolio by the same investors. The leverage effect always turns small things into storms and ultimately into bigger disasters." He was referring to the broader uncertainty of AI.

Companies such as CoreWeave, Nebius, Lambda Labs, Applied Digital, Iren, Crusoe and TeraWulf are building energy-intensive data centers and then leasing them to companies developing and operating AI models. Before the leasing business can be launched, it requires huge upfront investment and almost no income. According to data compiled by LSEG, CoreWeave has never made a profit.

CoreWeave stressed that the amount of unfulfilled deals it had struck was much higher than its debt. Its unfulfilled transactions in the second quarter amounted to US$104.2 billion, and at the beginning of the third quarter, it had secured US$25 billion in new order commitments.

However, Coreweave is burning money too fast. Last year, its annual revenue was US$5.1 billion and its net loss was US$1.2 billion. Although revenue is expected to double this year, capital expenditures are expected to quadruple to between US$35 billion and US$39 billion, indicating that more funds will be burned this year.

Tommaso Leodari, chief investment officer of hedge fund Index & Cie, said that Coreweave's revenue growth relies on debt financing rather than equity financing. Therefore, if there are problems with the use of its assets, such as a slowdown in data center construction, it will cause debt repayment problems and affect investor confidence.