CoreWeave debt concerns trigger selloff in Oracle, AI cloud stocks

CoreWeave operates a cloud platform optimized for artificial intelligence workloads. The company has grown its data center network from three facilities to 51 over the past four years, financing much of that buildout with debt. It reportedly has $50 billion in outstanding obligations and raised a significant portion of its financing by issuing bonds. A decline in bond prices indicates that investors are concerned about the issuer’s financial performance.

On Tuesday, venture capitalist Chamath Palihapitiya started an X discussion about a $1.25 billion batch of CoreWeave bonds. He posted a graph showing the instruments’ yield briefly passed 15%. A yield increase is usually caused by a decrease in bond prices, which in turn indicates investor selling. SpaceX Corp. CEO Elon Musk, whose company operates X, replied with the word “Yikes.” Luis Alvarado, co-head of global fixed income strategy at the Wells Fargo Investment Institute, told CNBC that CoreWeave’s balance sheet is “relatively bad” compared with other neoclouds. A neocloud is an emerging cloud provider focused on AI workloads.

CoreWeave shareholders reacted to the discussion. The company’s stock plummeted more than 15.5%, and investors bought a significant number of CoreWeave puts, financial instruments whose demand tends to rise when there are concerns about a company’s financial performance. Other neoclouds also fell: DigitalOcean, TeraWulf Inc. and Hut 8 Corp. each saw share prices decline by more than 10%. Oracle Corp., which is not a neocloud but has borrowed heavily to finance its data center buildout, closed 8.8% lower. Upstream suppliers were caught in the selloff as well. Dell Technologies Inc. and Advanced Micro Devices Inc., both of which count multiple neoclouds as customers, closed about 11.3% and 5.73% lower, respectively.

CoreWeave CEO Mike Intrator wrote in a memo to employees that “when you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally. We are confident in our backlog which more than supports all of our debt obligations.” CoreWeave’s backlog, a metric that measures expected revenue from cloud contracts, stood at $104 billion in June. Much of that sum is tied to infrastructure deals with Microsoft Corp., Meta Platforms Inc. and OpenAI Group PBC.