One of the triggers behind the recent sharp retracement of AI stocks is the rising debt pressure of CoreWeave, an AI cloud computing provider, which may trigger a credit crisis in AI infrastructure and further impact the development of the overall AI industry. (Reuters)
CoreWeave's debt pressure triggers pressure on AI stocks
[Financial Channel/Comprehensive Report] AI stocks have retreated sharply recently. One of the triggers behind this is the rising debt pressure of CoreWeave, an AI cloud computing power supplier, which may trigger a credit crisis in AI infrastructure and further impact the development of the overall AI industry.
Investors began to question whether market demand was enough to support the billions of dollars that CoreWeave had borrowed to build data centers. Despite assurances from CoreWeave's CEO that the amount of contracts on hand was substantial, CoreWeave's stock and bond prices fell sharply, fueling broader selling pressure on technology stocks. This has also made some investors curious, what kind of company is CoreWeave, known as the "son of NVIDIA"?
"Reuters" reported that CoreWeave's main business is to lease the computing power equipped with Huida processors to companies that develop and run AI. Its customers include major technology companies such as Microsoft and OpenAI. CoreWeave is one of the leading players in the emerging "neocloud" service providers, a new breed of cloud companies that are expanding rapidly to meet demand for scarce and expensive AI chips.
These new cloud companies allow customers to obtain computing power without having to build their own data centers. However, to provide this kind of computing capacity, companies must borrow heavily upfront to purchase chips and build infrastructure, and these investments are usually financed by borrowing. CoreWeave will be available in March 2025. It is a leading company among the "new cloud companies" industry.
This also makes CoreWeave’s financial situation relatively precarious. According to data compiled by the London Stock Exchange Group (LSEG), CoreWeave has never made a profit so far and currently has debts of approximately US$50 billion. In August this year, CoreWeave raised its full-year capital expenditure forecast by $4 billion to $35 billion to $39 billion. Analysts estimate that the company will have revenue of nearly $13 billion this year and a loss of $2.13 billion.
CoreWeave's main business is to lease the computing power equipped with Huida processors to companies that develop and run AI. The picture shows Huida Vera CPU. (Reuters)
CoreWeave corporate bond yields have soared to 16%
The yield on CoreWeave's junk-rated bonds due in 2031 has soared to about 16%, which is higher than the level that usually indicates a company is in financial distress; the cost of insuring the company's debt default risk has also risen to about 1,000 basis points, which means the market estimates that the company's probability of default in the next five years is close to 63%, up from about 30% a year ago, reflecting the deepening doubts of creditors.
The reason why CoreWeave is called "Huida's son" mainly comes from the fact that Huida holds about 10% of CoreWeave's shares and is CoreWeave's second largest shareholder. CoreWeave's core chip supplier is also Huida, and the two parties have close equity and business intersections.
In the face of market panic, Huida CEO Jensen Huang said: "CoreWeave's financial strength is improving every day." He also said that he did not think it was necessary for Huida to provide financial guarantees for CoreWeave. "I'm optimistic. Their cost of capital is actually coming down."
Huang Renxun does not think it is necessary for Huida to provide financial guarantees for CoreWeave. (Bloomberg)
Gu Neng: About 80% of new cloud companies may go bankrupt in 2030
The sell-off in CoreWeave's shares comes as CoreWeave co-founder Brannin McBee told the Financial Times that the company was seeking to obtain an investment-grade credit rating to open up access to "unlimited" funding.
However, research firm Gartner said that by 2030, about 80% of new cloud players may go bankrupt; if AI service providers continue to maintain the current investment pace, more than US$3.5 trillion in AI spending may face asset impairment.
"AI service providers are expected to spend nearly $1 trillion on AI infrastructure in 2026, and an additional $6 trillion is expected to be invested between 2027 and 2030," said Will Sommer, an analyst at Guengeng. "However, our research shows that the AI revenue generated by enterprises and consumers during this period will not be enough to achieve a profitable return on investment for all planned AI capital expenditures."
CoreWeave CEO Mike Intrator refuted outside concerns in an internal memo on the 14th. He told employees that the company's outstanding contract amount is sufficient to cover all debt obligations and is more than sufficient; he also said that the market sometimes "misunderstands situations and reacts irrationally."
CoreWeave CEO Intreiter pointed out that the market sometimes "misunderstands the situation and reacts irrationally." (Bloomberg)
