CoreWeave Has Slumped on Debt Concerns. Investors Are Still Keen on Its Convertible Bonds.

CoreWeave leases data centers for artificial-intelligence computing. (Dreamstime)

CoreWeave stock dropped after the cloud-computing company said it was issuing $2.25 billion in debt that can be converted into shares.

CoreWeave said Tuesday it increased a planned $2 billion issue of convertible senior notes due 2031 due to strong investor demand.

The notes will carry an interest rate of 1.75% and can convert at 9.2764 shares of CoreWeave’s Class A stock per $1,000 in principal amount of notes, indicating an initial conversion rate of around $107.80 per share.

CoreWeave shares were down 1.9% at $84.60 in premarket trading on Tuesday, after falling 2.3% the previous day when the debt issue was initially announced.

“This financing further strengthens CoreWeave’s balance sheet, while lowering its cost of capital, as the company scales its AI cloud platform to meet unprecedented demand,” a CoreWeave spokesperson said in an emailed statement.

CoreWeave’s debt has become a focus for investors in recent months. Spreads on its five-year credit default swaps had risen to 642.965 at Friday’s close, according to Bloomberg data, from 368.395 on Oct. 6, a sign that investors were willing to pay more for insurance against default. Credit-default swaps on single companies can be volatile because they are often thinly traded.

The company’s debt load stood at $14 billion at the end of September. High interest expenses contribute significantly to its costs, with its recent unsecured senior notes priced at a 9% interest rate. The company has argued that it takes on debt to make available computing power that customers have already agreed to buy at guaranteed prices.

Originally a cryptocurrency miner, CoreWeave has redirected its computing capacity toward artificial-intelligence workloads. Barron’s wrote recently about its ‘neocloud’ business model, noting its heavy debt load but also the potential for shares to gain if AI computing demand continues to outstrip capacity.

Among other neocloud companies, Nebius Group shares were down 1.4% and IREN was falling 1.3% in Tuesday’s premarket.

Write to Adam Clark at adam.clark@barrons.com