CoreWeave Stock Drops. Why AI Debt Fears Aren’t Over Despite Nvidia’s Confidence.

CoreWeave has borrowed heavily in order to fund data-center expansion. (Dreamstime)

Key Points

• CoreWeave stock fell on Friday, resuming a 15% decline over the past five trading sessions.
• The stock drop persists despite Nvidia CEO Jensen Huang stating that Nvidia does not need to backstop CoreWeave due to its improving finances.
• CoreWeave’s debt yields have reached as high as 16% as investors demand more compensation for the risk of its borrowing.

CoreWeave was falling again early Friday. The cloud-computing company got some relief from a vote of confidence from Nvidia CEO Jensen Huang but it’s still at the heart of doubts about artificial-intelligence spending and the associated debt.

CoreWeave shares were down 4.4% at $66.61 in premarket trading. The stock rose 5.9% on Thursday after Huang said his chipmaking company didn’t need to backstop CoreWeave—which counts Nvidia among its investors—as its financial strength was improving.

But shareholders are still nervous. CoreWeave stock has fallen 15% in the past five trading sessions. That’s partly a reaction to soaring yields on its debt, which have touched as high as 16% as investors demand more compensation for the risk of its borrowing. CoreWeave carries a ‘B,’ or highly speculative, credit rating from S&P Global because it carries a high level of debt relative to earnings.

Other so-called neocloud stocks were edging down, with Nebius Group falling 0.9% and IREN down 0.8% in the premarket. Software company Oracle , which has expanded heavily into cloud computing, was down 0.3%.

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BNP Paribas Equity Research senior analyst Daniel Wang is positive on CoreWeave stock, with a $169 target price. However, he argues CoreWeave needs to show it can generate sufficient cash flows to its obligations without continued reliance on external capital.

“At these levels, we believe traditional debt financing becomes increasingly uneconomic, likely leaving convertible debt and equity issuance as the primary source of incremental corporate capital until credit investors gain greater confidence in the company’s ability to be self funding,” Wang wrote in a research note Thursday.

CoreWeave said Wednesday that its revenue backlog should more than support the payment for all of its debt obligations, without needing customers to renew their contracts or finding new tenants for the properties.

Write to Adam Clark at adam.clark@barrons.com

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