CoreWeave Debt Deal Scooped Up By Investors. The Stock Is Dropping Again.

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

CoreWeave stock dropped after the cloud-computing company said Monday it was issuing $2 billion in debt that can be converted into shares. On Tuesday, it increased the planned issue to $2.25 billion due to strong investor demand—and the stock rose. Now, it’s falling once again.

CoreWeave shares fell 2.3% on Monday, when the debt issue was initially announced. They were up more than 5% on Tuesday, but are down 5.4% at $85.76 at 9:53 a.m. on Wednesday.

The convertible senior notes due 2031 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.

“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.

The convertible debt sale is part of an ongoing process where debt supports capital expenditures for new data centers which leads to rapid revenue growth, and that gives future lenders confidence that they will see their principal and interest payments. On the company’s third-quarter earnings call, it projected about $13 billion in 2025 capex, which left it with around $8 billion left to spend in the fourth quarter.

CoreWeave exited the third quarter with $6.7 billion in liquidity and has since added $3.3 billion, including the new convertible notes. This was just a top-off to hit its capex target and still have some cash left over.

Next year is when lenders’ confidence in the CoreWeave business model will be tested. After CoreWeave gave its 2025 capex guidance, CFO Nitin Agrawal said that 2026 capex will be “well in excess of double that of 2025.” It could spend around $30 billion next year on data centers to fulfill customer contracts, and all of that will have to be financed. That’s when the rubber hits the road for CoreWeave.

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.

Let the tug-of-war between the debt and the stock continue.

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