The Austin Powers steamroller: How to trade CoreWeave's slow moving crisis
After a 27.5% drop from last Friday's close to this Thursday morning's 52-week lows, followed by a 17% rebound, equity traders holding CoreWeave are dazed.
Key points
- CoreWeave shares fell 27.5% from last Friday's close to 52-week lows on Thursday morning, then rebounded 17% and dropped another 5% today.
- The AI cloud company has accumulated $51.6 billion in debt, about $46 billion net of cash, with no historical profitability.
- Analysts are sharply divided, with HSBC maintaining a Sell rating and a $39 target while BNP and Cantor Fitzgerald expect the stock to more than double.
CoreWeave (CRWV) shares swung sharply this week, dropping 27.5% from last Friday's close to 52-week lows by Thursday morning before rebounding 17%. The stock fell another 5% today. The company, an AI cloud infrastructure platform, has $51.6 billion in debt, roughly $46 billion net of cash, and no historical profitability.
The article describes the situation as a slow-moving crisis, comparing equity traders to a guard in Austin Powers who stands in front of a steamroller. With earnings weeks away, heavy leverage, a split sell-side and 15.4% short interest, the stock remains set for volatile trading.
What drove the selloff
The article states that credit markets had warned for months while equity holders largely ignored the signals. The CEO's comments that the company aspired to be investment grade so it could borrow "unlimited sums" spooked investors, especially as debt issued in June had already fallen 20%. Investors also anticipated nearly another $60 billion in debt over 18 months.
Because CoreWeave is levered more than 2:1, a 10% move in enterprise value translates to a nearly 22% swing in equity value. Options premia were in the 6th percentile last week, 1.5 standard deviations below the one-year mean, which the article says was hard to reconcile with deteriorating credit.
unlimited sums
— CoreWeave CEO
Divided analyst views
HSBC maintains a Sell rating with a $39 price target, implying the stock could be cut in half. BNP and Cantor Fitzgerald argue the fears are overblown and the stock should more than double. Nvidia CEO Jensen Huang downplayed systemic concerns, and ARK Investment bought 192,000 shares.
BofA says CoreWeave's ability to bring active power online at scale, plus higher pricing from Nvidia's upcoming Vera Rubin deployments, will drive faster-than-expected revenue growth. BofA called execution risk a bigger concern than financing.
