One of the biggest stories last week was the decline and subsequent midday reversal in neocloud stock CoreWeave Inc. (CRWV). The two days of volatility are a kind of microcosm for the AI trade of late, observes Tom Essaye, president of the Sevens Report.
After a huge selloff of more than 15% on Wednesday, CRWV picked up where it left off in early Thursday trade. The stock bounced back early, building momentum throughout the session and finishing with a robust 5.9% gain. The move suggests that investors see a buying opportunity following that steep slide that had extended into early Thursday trading.
The issue here is CoreWeave’s 9.625% notes due in 2032. The debt was recently selling at nearly 81 cents on the dollar, up from 76 cents at one point earlier in the session, according to the data firm MarketAxess. The bonds are offering a staggering yield of approximately 14.6%.
CoreWeave’s bonds were being hit hard due to fears that the AI cloud-computing provider, who leases out advanced computer chips needed to power applications such as OpenAI’s ChatGPT, wouldn't be able to meet its debt obligations as borrowing costs rise.
But the pressure on CRWV is reflective of the wider concern that all of the AI buildout spend won't deliver the ROI that both hyperscalers and the AI-related companies are relying on to justify all that enormous capex. And while the rebound Thursday in CRWV was encouraging for the AI bulls, the volatility is a kind of microcosm for the AI trade of late, and we expect more of the same as action in this space plays out.