Share price drops 36% in a month, CDS spreads surge—AI cloud service provider CoreWeave (CRWV.US) deep in a confidence crisis

According to Zhitong Finance APP, CoreWeave (CRWV.US) is facing a crisis of confidence, with both its stocks and bonds being sold off. As interest rates soar and concerns over AI infrastructure construction mount, heavily indebted new cloud service providers like CoreWeave are being viewed by many market participants as the most vulnerable trades in the AI sector.

Barclays credit analyst Andrew Keches wrote in a report to clients on Tuesday: "Market sentiment is clearly negative," referring to corporate debt in the tech industry. He also emphasized that "the landscape in the AI sector is changing rapidly every day."

CoreWeave went public in March last year, and three months later its market capitalization peaked at around $90 billion. Today, the company's market cap stands at about $31 billion, with its stock down 36% this month, including a 10% drop on Thursday alone. Meanwhile, its unsecured debt yields are approximately 15%. Over the past year, CoreWeave's five-year credit default swap (CDS, a type of default insurance) spread has surged 179%, jumping 39% in October and recently quoted at 1,145 basis points, or 11.45%. CoreWeave declined to comment.

This crisis of confidence is spreading across the entire new cloud services sector. Shares of Nebius (NBIS.US) have dropped 33% this month, and IREN (IREN.US) is down 38%. In Australia, shares of data center operator NextDC plummeted 40% on Wednesday after the company sharply lowered its annual profit forecast. Earlier this month, Australian data center firm Firmus canceled its IPO plans, citing market volatility and poor conditions.

UK-based new cloud service provider Nscale is also under the spotlight, as investors watch whether the Nvidia (NVDA.US)-backed firm will proceed with its IPO. The company submitted its listing application to the New York Stock Exchange last month.

Tightening Financing Environment

CoreWeave is the largest company among the new cloud service providers and is closely linked to the US AI market. According to FactSet data, Nvidia is CoreWeave's largest institutional investor, holding about 9% of its shares. Last year, over two-thirds of CoreWeave's revenue came from Microsoft.

This has made markets more attentive to its financial health and going concern abilities. The company has about $20.7 billion of debt maturing by 2030, with another $14.9 billion maturing later, while future fundraising may face higher interest rates.

Sources in credit circles revealed that due to ongoing market concerns about political obstacles faced by data centers, the high-yield bond market has essentially paused and is expected to resume only after the mid-term elections in two weeks. A source who requested anonymity due to the sensitivity of the matter said that fixed-income investors "want substantive resolution of licensing and regulatory issues" before committing funding. Seth Meyer, Global Head of Client Portfolio Management at Janus Henderson, said in an interview, "Given the recent market turmoil, pausing financing makes sense."

Financing Requirements Calculation

On Thursday, CoreWeave CEO Mike Intrator sent a memo to employees to try to calm concerns. Intrator emphasized that the company has multiple financing channels. He wrote, "Our financing model combines infrastructure-backed borrowing, corporate bonds, equity, and customer prepayments." He also stated that as market conditions and capital needs change, the company has "additional flexibility to issue more equity over time."

As of the end of the second quarter, CoreWeave held $5.5 billion in cash and equivalents. The company is expected to announce its third-quarter results next month. FactSet data shows analysts expect negative free cash flow to widen to $10.1 billion in the quarter, the highest since the company began reporting quarterly financials.

Heading into earnings season, one key market debate is how much capital CoreWeave still needs to raise. Baird software analyst Rob Oliver estimates the company will need about $30 billion by 2027. He said, "The financial report may involve confidence-boosting financing measures, but they won't need that money until at least the first quarter of next year."

Bernstein’s latest report provides a longer-term total estimate: to deliver on existing, signed but undelivered compute contracts, CoreWeave will need about $85 billion in total funding, of which $9 billion can be covered by existing financing arrangements, leaving about $76 billion of incremental capital to be raised. Bernstein notes that the unsecured debt market remains open to CoreWeave, but at rates above 15%; future financing rates may be even higher.

Another question is whether Nvidia would step in if necessary. Nvidia supplies CoreWeave with GPUs and invested $2 billion in January for an approximate 10% stake in CoreWeave at a purchase price of $87.20 per share. Although shares jumped 6% on the news day, they are currently trading at just $55.60.

Last week, Nvidia CEO Jensen Huang said CoreWeave "does not need Nvidia's backstop" and stated its "cost of capital is actually coming down." However, some investors believe that if credit conditions continue to deteriorate, further involvement from the chip giant may be necessary. Bernstein believes that if real downside risk emerges, Nvidia might step in—this may not revive CoreWeave’s share price, but it could at least provide a floor of support.

Institutional Divergence: Bullish and Cautious Coexist

Notably, analysts from Goldman Sachs, J.P. Morgan, and Barclays all issued bullish reports on CoreWeave this week, highlighting its GPU-backed loans and stable investment-grade client roster, including Microsoft and Meta.

Goldman Sachs analysts upgraded CoreWeave from "Hold" to "Buy," emphasizing that CoreWeave has market strength relative to many of its new cloud competitors. Goldman Sachs analysts wrote, "Not all cloud platforms are created equal. By performance and execution, CoreWeave likely falls within the top quartile, if not the top decile of its industry."

However, Bernstein maintains an "Underperform" rating on CoreWeave, lowering the target price from $74 to $51, citing concerns over cost of capital, especially financing capabilities following the shift to shorter-term contracts. Bernstein also notes that CoreWeave's pivot to enterprise clients is strategically sound—but it comes with financing trade-offs: short-term contracts can increase per-megawatt pricing, while enterprise clients help improve business sustainability; however, such contracts are riskier for creditors and do not support CoreWeave in reducing capital costs.

Bernstein also points out that other new cloud service providers may own real estate, have healthier balance sheets, and more uncommitted 2027 capacity, but this doesn’t fully insulate them from sector-wide economic risks; if CoreWeave disappeared tomorrow, its hosting contracts would be absorbed, and the market would continue to function.