By Vidya Ranganathan and Aditya Soni
LONDON/BENGALURU, Oct 16 (Reuters) - Loss-making and deeply indebted US cloud company CoreWeave became an easy target this week for investors concerned about an artificial intelligence bubble. Its selloff, though, has greater significance for markets than its size implies.
The slump in the shares and bonds of the $39 billion Nvidia-backed AI infrastructure company came after third-quarter reports from hyperscalers hinted at delays in data center projects and a slower
pace of growth in capital expenditure.
Worried investors took aim at new-age AI-based cloud firms, or neoclouds, such as CoreWeave, conceivably the weakest links in the AI ecosystem because of how they borrow heavily to finance chips, land and energy for data centers which will yield income only in the future.
CoreWeave's shares dived more than 15% this week while yields on its 2030 bonds jumped 500 basis points to near 16%.
CoreWeave chief Mike Intrator told employees in a memo, seen by Reuters, markets can sometimes "misunderstand and act irrationally" and it has a strong pipeline of demand. The company did not respond to Reuters' requests for comment.
Investors focused instead on its $50 billion debt and the perils of being trapped in the middle of a circular financing arrangement between chipmakers such as Nvidia and clients such as Meta Platforms and OpenAI.
"The problem with this stuff is that we're talking about huge interconnectedness, not just circular financing but the fact that these assets are all held in the same places, in the same portfolios, by the same types of investors," said James Athey, fixed-income portfolio manager at Marlborough.
"And leverage is always that thing which turns a storm into a teacup into something more nefarious," he said, referring broadly to the AI jitters.
Companies such as CoreWeave, Nebius, Applied Digital, Iren, Lambda Labs, Crusoe and TeraWulf are building energy-intensive data centers they can eventually rent out to firms developing and running AI models. That calls for massive upfront investment and very little income until the leases begin.
CoreWeave has never turned a profit, according to data compiled by LSEG.
CoreWeave's CEO also said in the memo that its deal backlog more than covers its debt obligations. The company had a $104.2 billion revenue backlog at the end of the second quarter, followed by more than $25 billion in new commitments early in the third quarter.
But the New Jersey-based company is burning cash faster than investors like. In 2025, CoreWeave reported annual revenue of $5.1 billion and a net loss of $1.2 billion.
While revenue is expected to double this year, capital expenditure is estimated to be up fourfold to between $35 billion and $39 billion, leading to even more cash burn this year. News that Intrator and entities linked to him have sold nearly $1 billion of stock since the company's IPO in March last year, mostly under prearranged trading plans as per regulatory filings, has not helped.
"Clearly they will need a capital injection or a bailout. They are burning capital, and capital is no longer free," said Alberto Gallo, founder of hedge fund Andromeda Capital.
"You want to buy debt in businesses that have visible cash flow, typically as a bond investor, not someone that is doing capex, in the hope that there will be more capex needed in the future," he said. The firm holds bets against CoreWeave bonds.
DOUBTS APLENTY
CoreWeave is at the top of the 100-odd neoclouds that research firm Gartner Inc says are "the most exposed to the imbalance between revenue and capital spending" and need to soon earn returns to sustain operations.
Gartner expects that by 2030, 80% of neocloud providers will cease independent operations.
"We are in a situation in which there are a lot of expectations on revenues and revenue growth, but this revenue growth is being fueled by the wrong type of capital, which is debt, not equity," said Tommaso Leodari, Dubai-based chief investment officer of hedge fund Index & Cie. The fund does not hold stakes in pure AI firms.
"In the specific case of CoreWeave, these guys are financing their entire business with debt. So if anything happens in the utilization of this particular asset or if there is a slowing down on the construction of these data centers, it will reflect in problems in repaying the debt."
A streak of warnings from AI hyperscalers such as Microsoft and Oracle Corp on delays in data center projects, power and component bottlenecks, a glut in high-end chips, alongside plans by giants such as Meta and Microsoft to launch their own chips to rival Nvidia's, have also stoked concerns about neoclouds.
The pace at which revenue is growing at AI giants such as OpenAI and Anthropic, while still fast, has also softened.
"Even at $10 billion revenue, CoreWeave is losing $2.5 billion, so there are no scale effects in the industry clear as yet," wrote Michael Frazis of Sydney-based Frazis Capital Partners.
CoreWeave has Nvidia's backing. The chip giant has agreed to buy unsold CoreWeave compute capacity through April 2032, guaranteeing it will have a buyer for capacity not sold to customers.
Ratings agencies have CoreWeave's debt marked as speculative grade, yet Sean Cray, vice president at Moody’s Ratings, pointed out the company does not speculatively purchase chips and has multiple avenues for financing.
Originally a bitcoin miner, CoreWeave has still been an easy mark for punters, and hedge funds have been buying its junk-rated bonds for the high yield. The cost of insuring its debt against default climbed to about 1,200 basis points this week, signalling severe distress.
"CoreWeave's credit selloff risks becoming a self-fulfilling prophecy," wrote Saurav Sen at research firm Gimme Credit. "The concern is less whether customers want the capacity than whether CoreWeave can afford to deliver it."
(Reporting by Vidya Ranganathan in London, Saeed Azhar in New York, Tom Westbrook in Singapore, Aditya Soni and Pattu Murugaboopathy in Bengaluru; additional reporting by Dhara Ranasinghe in London and Anhata Rooprai in Bengaluru; Editing by Nick Zieminski)
