Nvidia’s Huang says CoreWeave needs no backstop after rout

Nvidia CEO Jensen Huang spoke up for CoreWeave ↗ 5.94% on Thursday, October 15, after a sharp selloff in the AI cloud provider's stock and bonds. He said the company is getting financially stronger and does not need Nvidia to guarantee it. "CoreWeave's strength is improving every day," Huang told Bloomberg at an event in Stockholm. "I'm optimistic. Their cost of capital is actually decreasing."news.bloomberglaw.com

Huang was trying to restore confidence after credit markets turned against CoreWeave and began pricing in a rising risk that it fails, Bloomberg Law reported. Nvidia supplies CoreWeave with computers and is also a major investor in the company.cnbc.com

Bond prices fall to distress levels

The comments came after two days of heavy selling. CoreWeave shares fell 15.5% on Wednesday, according to CNBC. The yield on its 9.625% bonds due 2032 rose to about 14.8%. CNBC added that S&P rates CoreWeave B+, which is junk territory. The company's unsecured 2032 debt traded below 80 cents on the dollar, a level widely seen as a sign of financial strain, Bloomberg reported. The drop caught the attention of Chamath Palihapitiya and Elon Musk.cnbc.com+1

The slide continued Thursday. Shares fell another 6% in premarket trading, and the yield on CoreWeave's 2031 bonds, issued in April, rose above 16%, according to Reuters. Reuters said the cost of insuring CoreWeave's debt against default reached about 1,000 basis points. That level implies a nearly 63% chance of default within five years, up from about 30% a year ago. Reuters also noted that this happened even though Nvidia has agreed to buy any unsold CoreWeave capacity through April 13, 2032.newsbreak.com

CoreWeave pushes back

CoreWeave CEO Mike Intrator told employees in an internal memo that the company's deal backlog more than covers its debt obligations. "When you are building a new type of technology company, there will be periods of time when the market misunderstands and acts irrationally," he wrote, according to Bloomberg and Axios. CoreWeave reported a revenue backlog of $104.2 billion in the second quarter. It also said it signed more than $25 billion in net new customer commitments in the third quarter, Reuters reported.rmb.reuters.com+2

Wider worries about AI debt

The company has about $50 billion in debt and is losing money. It has become a focal point for doubts that the data center boom can last when it is increasingly funded with borrowed money, Reuters reported. Rising interest rates added to the pressure. A hotter-than-expected September consumer price report briefly pushed the 10-year Treasury yield above 5.30% on Wednesday, according to Axios.reuters.com+1

Not every analyst is negative. Deutsche Bank ↗ 0.18% analyst Brad Zelnick kept his buy rating, according to Investor's Business Daily. He said most of the backlog is tied to long-term take-or-pay contracts. Under those contracts, the revenue covers all capital and operating costs and still earns the company a return.investors.com