CoreWeave's unravelling

When CoreWeave debuted in late March, the AI datacenter company had a lot to live up to.

At the time, CoreWeave was the first big tech IPO since 2021 and a self-proclaimed “pure-play” AI firm, which came with all the hype—and all the baggage—you would expect.

The day of the IPO was initially underwhelming, but in the first three months of trading CoreWeave surged roughly 300%, seemingly proving that traders were still hungry for more ways to invest in the “picks and shovels” of the AI boom.

But now, CoreWeave is trying to weave together some optimism, because things have taken a serious turn for the bearish. Shares have plummeted 56% over the last six months, including a 23% drop in the last five trading sessions alone. The culprit is a combination of AI bubble fears, some genuine red flags about the business, and one really loud hater: Jim Chanos.

The core of CoreWeave’s woes

CoreWeave is one of those companies that you’ve probably heard of, but don’t really get what they do.

Essentially, CoreWeave’s core business is capitalizing on the huge demand for AI datacenters. The company uses high-interest debt to buy tons of Nvidia chips, and then rents out access to those chips to Silicon Valley giants like Microsoft, Meta, and OpenAI.

When the AI trade is bumping and CoreWeave is doubling its revenue, those loans look like a smart trade-off. But when fears start trickling through Wall Street that the circular AI trade is beginning to implode, all of a sudden investors start to see that high-interest debt, as well as CoreWeave’s reliance on a few high-powered customers, as a huge liability.

D.A. Davidson’s Gil Luria, for example, wrote in a note that CoreWeave has the “ugliest balance sheet” in the whole tech sector. It isn’t just analysts that are concerned: In late October, CoreWeave’s proposed acquisition of Core Scientific fell apart after Core Scientific shareholders rejected CoreWeave based on its crummy balance sheet, according to the Wall Street Journal.

Jim Chanos, the short seller who famously bet against Enron, is also calling BS on CoreWeave’s business, arguing that the datacenter construction business is too capital intensive.

Finally, CoreWeave is contending with one more headwind: headwinds. Wind and rain from summer storms in Texas delayed the construction of one of its biggest AI datacenters, which it planned to lease to OpenAI, according to the WSJ. Management bungled communications about the delay, further scaring off investors.

CoreWeave’s tumble hits right at the heart of AI bubble fears: If a hyped-up stock with so much initial demand can’t keep up momentum, then how can the rest of the industry survive?—LB