From Crypto Roots to AI Selloff: Why CoreWeave Is Under Pressure

CoreWeave (CRWV) shares have fallen more than a third in October as investors balk at roughly $52 billion of debt taken on for artificial intelligence (AI) data centers, even though revenue more than doubled last quarter.

The Nvidia-backed company did not start in AI. It was founded in 2017 as Atlantic Crypto, mining Ethereum (ETH) on graphics processing units (GPUs), and renamed itself CoreWeave in 2019 after repurposing that hardware to rent out computing power.

Why Are Bond Investors Fleeing a Revenue Boom?

CoreWeave booked about $2.5 billion in second-quarter revenue, up 112% year over year. Debt markets, however, are charging far more for the borrowing. Its unsecured bonds yield about 15%.

Meanwhile, the spread on its credit default swaps, contracts that insure against default, has passed 11%.

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Nvidia CEO Jensen Huang said last week that CoreWeave needs no backstop from the chipmaker, and he addressed its financing costs directly.

"Their cost of capital is actually decreasing."

He spoke on Oct. 15, a day after CoreWeave stock sank 15%, its steepest one-day fall since February.

What Happens to the AI Trade if CoreWeave Cannot Refinance?

Nvidia is entangled on three fronts. It supplies the chips, owns about 9% of CoreWeave, and has committed to buy up to $6.3 billion of its capacity if no other customer does.