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AI cloud computing company Corewave bombed in March with its biggest tech IPO since 2021.
The company’s stock rose more than 40 percent in the following days due to the immense hype surrounding generative AI. This hype was driven by insatiable AI companies like Microsoft, OpenAI, and Meta leasing hundreds of megawatts of computing as organizations like CoreWave build huge data centers.
If AI chip maker Nvidia is selling shovels during the ongoing AI gold rush, in other words, Corewave is buying those shovels in bulk and leasing access to dig sites.
But persistent fears of an AI bubble have weighed heavily on investor enthusiasm, leading many to wonder whether CoreWave could be the canary in the coal mine – and even comparison to enronA company with highly speculative valuations that collapsed in 2001 after a major accounting scandal.
In form of wall street journal reportsCoreWeave’s share price has fallen 46 percent in just six weeks, with $33 billion of its value going up in smoke. As of press time, shares are hovering below $70, meaning the company has lost 56 percent of its stock value in just six months.
This could be a sign that investors are concerned that the heavy spending by the likes of Coreview may not be justified in the long run. Even AI leaders warn that the comeback could still take years, with OpenAI admitting last month No one will make money until at least 2030,
There is no need to read too much between the lines to understand why they are nervous. Taking on huge amounts of high-interest debt to build and lease AI data centers exposes the company to a great deal of risk, potentially putting it in the first place if the AI ​​bubble bursts.
Its operations are also facing some major hurdles, literally and figuratively. Rain in Texas caused the company to delay laying the foundation for the AI ​​data center complex, pushing back the completion date by several months. WSJ Report.
Investors have also balked at circular financing arrangements in the sector. For example, Nvidia owns six percent of the company’s shares, while CoreWave has signed an exclusivity contract with the AI ​​chip maker to use only its GPUs. Microsoft represents 62 percent of CoreWeave’s 2024 revenue wall street journal told last monthand is also a major shareholder of CoreWeave’s top customer, OpenAI.
Then there’s CoreWave CEO Michael Intrator, who allayed those fears last month.
“If you’re building something that drives the economy and has fundamental value to the world, the world will find ways to finance huge amounts of trade,” he said at an event. wall street journal events In early November.
Days after playing down concerns over an AI bubble, Intraday was scrutinized by investors during a quarterly earnings call regarding delays at a Texas data center construction site.
He argued that “we have 32 data centers in our portfolio,” and “it will grab one data center, and then we will grow from there.”
according to WSJThe company’s CFO, Nitin Agarwal, was forced to intervene and clarify that the delays were occurring across multiple data centers for a single “data center provider”.
Investors are also worried that the huge amount of debt being taken could increase significantly due to supply chain disruptions. The delay may not seem like a big deal in the grand scheme of things, but considering how much money and interest is on the line, there is a huge amount of pressure on CoreWeave to deliver some good news.
“Increasingly the case is that they’re going to have to scale up in this, and a lot of companies have lower margins to start with, but this is a massive company,” said DA Davidson analyst Gil Luria. WSJ“There’s no scalping going on here,”
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