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AI Cloud Firm Eyes Hedging Against Chip Price Drops
15 Jul
Summary
- CoreWeave is exploring financial derivatives to hedge chip price drops.
- Long-term chip supply deals expose cloud firms to potential price overpayment.
- Memory chip prices have spiked, but historically fall after new capacity.
AI cloud company CoreWeave is reportedly exploring the use of financial derivatives as a hedge against potential future declines in memory and storage chip prices. This consideration arises from long-term supply agreements that guarantee chipmakers a price floor, a situation that could leave cloud providers like CoreWeave overpaying if market prices drop.
The AI boom has intensified demand for chips, leading cloud operators to secure supply through multi-year contracts. However, these arrangements expose cloud firms to the risk of paying above current market rates should prices fall, which is a historical pattern in the cyclical memory chip industry.
Discussions within CoreWeave are in early stages, with possibilities including put options to sell assets at a predetermined price. This hedging strategy, common in sectors like energy and airlines, aims to mitigate financial exposure to market volatility. Memory and flash storage prices have recently surged, with new manufacturing capacity expected to come online in early 2028.
