- Credit markets are flashing warnings on the neoclouds. Yields on some CoreWeave bonds maturing in 2031 jumped above 16%, and the spread on its five-year credit default swaps soared above 1,240 basis points, up 50% in the past month, CNBC reported.
- The equity damage has been severe. CoreWeave and Nebius have each lost about half their value in the past month heading into earnings this week, with CoreWeave reporting Tuesday and Nebius on Thursday, though CoreWeave shares were up 6.3% at $49.32 as of 10:45 a.m. ET, according to CNBC data.
- Leverage is the crux. At the end of June CoreWeave had $5.5 billion in cash against $35 billion in debt, roughly 6.4 times its cash by our calculation, including $1.3 billion at a 15% rate due March 2028 and $3.2 billion at 11% on an August 2030 facility.
- Growth expectations remain huge. Analysts expect quarterly revenue to jump about 160% to $3.55 billion, according to LSEG, while Freedom Capital Markets’ Paul Meeks estimates revenue rising from $5 billion in 2025 to $42 billion in 2028 with an EBITDA margin close to 70%.
What Happened?
Neoclouds had a brutal stretch last week, with dramatic drops last Thursday contributing to the Nasdaq’s steepest slump in 19 months, as Democrats swept governors’ races and voters rejected data centers in all but one of 41 ballot measures nationwide. CoreWeave CEO Mike Intrator said on LinkedIn the company does not “anticipate any impact to CoreWeave’s existing customer commitments or associated backlog” from political shifts, but bond and CDS markets kept deteriorating. Smaller rival IREN, which said about 48% of its backlog is tied to Microsoft, jumped 20% on Friday after reporting AI cloud revenue more than doubled. Nvidia, a major investor in CoreWeave and Nebius, faces its own turbulence after CEO Jensen Huang’s admission of an affair with an alleged Chinese spy.
Why It Matters?
The risk is a feedback loop between equity and credit. Meeks called it “a self-fulfilling prophecy, a doom cycle,” in which creditor worries force CoreWeave to borrow at “exorbitant rates” to fund its AI build. Morningstar’s Luke Yang said CoreWeave is unlikely to go bankrupt soon and can deliver existing contracts, but growth over the next five years will require more capital, and the beaten-down stock makes equity raises costly. Unlike hyperscalers Amazon and Microsoft, the top neoclouds are unprofitable and depend on a small number of customers, Partners Group’s Anastasia Amoroso noted. The IPO window is also narrowing, with Nscale yet to update its prospectus, SB Energy in a similar bind and Australia’s Firmus scrapping its IPO.
What’s Next?
Tuesday’s CoreWeave report and Nebius’ Thursday results, where analysts expect sixfold growth to about $908 million, are the near-term tests. Yang wants to hear how management plans “to close this financing gap,” and Meeks expects “some relief” from both reports but said, “I am not fool enough to downplay the credit risk.” Watch bond yields and CDS spreads after the results as the clearest read on whether lenders are coming back.
Affected Tickers and Coins: CRWV, NBIS, IREN, NVDA, MSFT
Source: CNBC, CNBC Market Data
