CoreWeave Stock Drops Again. Insuring Against an AI Slowdown Is Getting Expensive.

CoreWeave and other AI infrastructure stocks have had a rough week. (Dreamstime)

Key Points

• CoreWeave’s stock fell 5.7%, continuing a slide in response to the cloud-computing company’s earnings report on Monday.
• Smaller data-center peers like IREN, TeraWulf, and Nebius Group also experienced declines, with IREN dropping 10%.
• The cost of CoreWeave five-year credit-default swaps increased over 53% since the start of October.

Investors hoping for a rebound from CoreWeave and other data-center stocks will have to wait at least another day.

Shares of companies focused on building and renting out cloud-computing facilities slumped yet again Thursday. CoreWeave fell 5.7% after a 3.4% drop on Wednesday and a 16% tumble on Tuesday.

It reported that a third-party data-center developer was behind schedule in an otherwise strong earnings report on Monday afternoon. The company reduced its outlook for fourth-quarter revenue in light of the delay.

Smaller peers have followed CoreWeave downward. IREN dropped 10% on Thursday, extending its losing streak to six days. The Alphabet-backed operator TeraWulf was down 7%. And Nebius Group declined 6.5%, marking a third consecutive decline since its own mixed earnings report on Monday.

The pullback reflects flagging enthusiasm about the artificial-intelligence trade. Mixed results and small nuggets of negative news are knocking already volatile stocks off course. And AI infrastructure stocks were facing headwinds weeks before the most recent financial results.

CoreWeave has plummeted more than 40% over the past month. It is off 56% from a record high reached high on June 20, according to Dow Jones Market Data. Nebius stock, which is up more than 200% this year, has also been heading lower since mid-October.

One sign that investors are more concerned: Insuring against CoreWeave defaulting on its debts is getting costlier. The price of CoreWeave five-year credit-default swaps has jumped more than 53% since the start of October, according to Bloomberg data. The trend is similar for Oracle, another cloud-based provider of computing power for AI.

Credit-default swaps act as insurance for corporate debt; buyers receive a payout if the company can’t repay its bonds or keep up with the interest payments**.** Higher prices indicate the market is pricing in a greater default risk.

The demand for swaps and the decline in CoreWeave’s stock go hand in hand, investment researchers at Bear Traps Report said in a note Wednesday. The company takes on significant debt to finance its data centers, and its debt and negative cash flow grow as a share of its enterprise value whenever the stock falls.

Plus, there are still unsolved energy constraints facing the AI boom. “Without a lot more power, there is NO AI capex growth in la la land,” the Bear Traps team wrote.

CoreWeave has consistently argued that it takes on debt to stand up computing power that customers have already agreed to buy. These future revenues fund the capital investments.

The company reported $55 billion in revenue backlog to end the third quarter, up from around $30 billion the second quarter. It also has one gigawatt of power capacity available under existing contracts.

“I think that’s probably one of the more misunderstood things about our business,” chief development officer Brannin McBee told Barron’s in May. “People will look at our debt load and say, wow, that’s a lot of debt. But in reality, when we are entering capex, it’s all success-based capex. We’re not buying infrastructure and hoping that people come and use it.”

Write to Nate Wolf at nate.wolf@barrons.com