The Fed May Hike Again. Here’s Why CoreWeave and IREN Face Different Rate Risks

Two factors are prompting investors in AI infrastructure companies to consider the impact of higher borrowing costs. Goldman Sachs and JPMorgan anticipate the Federal Reserve to raise rates by 25 basis points this week, with futures pricing indicating a 90% probability of such a move. However, AI safety concerns are also influencing expectations about future compute demand.

CoreWeave, Inc. (NASDAQ:CRWV) and IREN Limited (NASDAQ:IREN) illustrate how a single rate hike could affect capital-intensive AI firms in different ways. CoreWeave's recent $2.6 billion delayed-draw facility charges interest at the Term SOFR rate plus 5.50%. Consequently, any increase in the Federal Reserve's policy rate could raise the company's interest expenses due to its reliance on floating-rate borrowing.

CoreWeave has a substantial backlog of $104 billion and a customer-backed financing structure, which helps mitigate some of the interest expense risk. On the other hand, IREN Limited (NASDAQ:IREN) has increasingly relied on fixed-rate or hedged project-specific financing, including contracts with Microsoft and Nvidia. This structure reduces the company's exposure to demand risks on its existing capacity, providing a buffer against higher interest rates.

Management has also discussed potential investments of up to $30 billion by mid-2027, but the vulnerability to higher benchmark rates lies with the cost of refinancing and financing future campuses. As of August 31, 93.61 million IREN shares were sold short, accounting for 25.01% of the float, with only 2.06 days to cover. While both companies present investment opportunities, the article suggests that some AI stocks may offer greater upside potential and lower downside risk.