By Siddarth S
Oct 20 (Reuters) - Most global banks have limited exposure to CoreWeave, J.P. Morgan estimated on Tuesday, after the Nvidia-backed cloud company's stocks and bonds slumped last week on investor worries over debt financing.
AI infrastructure spending has been rattling investors globally as tech companies are on a fundraising spree from private-credit investors, banks and bond markets to rapidly expand, while questions over returns on these investments swell.
While large US investment banks
along with Japan's MUFG could potentially have exposure of about $1 billion to $3 billion in CoreWeave, most European and Asian players have less than $500 million, the Wall Street brokerage said.
Much of this is through delayed draw term loans, J.P. Morgan said, which are largely held through special-purpose vehicles, with capital released as projects meet milestones.
"From the perspective of financing banks, we view bank exposures to CoreWeave as well managed and very well secured," J.P. Morgan analysts led by Kian Abouhossein said in a note.
The brokerage said estimates are based on "simplified assumptions" because banks provide limited disclosure on their exposure to the AI investment cycle.
J.P. Morgan has an "overweight" rating on CoreWeave with a target price of $125 for 2027-end.
The cloud company has about $24 billion of committed delayed draw term loans, including $15 billion drawn and $9 billion undrawn, according to the brokerage.
CoreWeave, which provides high-performance computing infrastructure for AI, has secured tens of billions of dollars in contracts with major technology companies. The company has about $50 billion in debt.
Last week, the yield on CoreWeave's notes due 2031 touched almost 16%, while the cost of insuring against the company's debt rose to around 1,000 basis points.
The key risk facing banks is a mismatch between upfront spending on AI infrastructure and revenue received over time, J.P. Morgan said, adding that it expects CoreWeave's free cash flow to remain negative until 2030.
(Reporting by Siddarth S in Bengaluru; Editing by Harikrishnan Nair)
