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CoreWeave Stock Tumbles Amid Financing Fears
21 Feb
Summary
- CoreWeave stock dropped significantly due to financing concerns.
- Lenders are hesitant to finance AI firms with lower credit ratings.
- Despite Nvidia backing, CoreWeave faces business model sustainability questions.
CoreWeave's stock saw a significant drop of up to 12% on Friday, reflecting recent volatility, though it remains up approximately 19% year-to-date. The downturn was triggered by a report indicating Blue Owl Capital's inability to arrange necessary debt financing for a joint data center development.
This project, intended for CoreWeave's use, reportedly failed to attract lender interest due to reluctance to extend credit to AI firms with below-investment-grade ratings. CoreWeave's credit is rated B+ by S&P Global Ratings, several notches below investment grade.
Despite strong backing from Nvidia, CoreWeave has encountered scrutiny from financial experts questioning the long-term viability of its business model, which involves renting computing power to AI clients. The company's high debt-to-equity ratio and its dependence on the AI sector have been noted as potential risks, especially as enthusiasm for AI has moderated recently.
Further challenges include a previously failed merger attempt with Core Scientific in October, opposed by a major shareholder. Noted short-seller Jim Chanos has also voiced concerns regarding CoreWeave's financials and profitability.
