Shares of Oracle, neoclouds drop on CoreWeave debt concerns

Shares of Oracle, DigitalOcean, and other tech companies fell on Tuesday after a viral chart on X revealed CoreWeave's financial situation. CoreWeave, a cloud platform for AI workloads, has expanded its data center network from three to 51 facilities in four years and financed much of its growth with debt. The company reportedly has $50 billion in outstanding obligations, largely in the form of bonds.

A discussion on X about a $1.25 billion batch of CoreWeave bonds showed that investors were concerned about the company's financial performance, as the yield on the bonds briefly increased to over 15%. This typically happens when bond prices drop, signaling an investor selloff. Elon Musk, CEO of X, replied to the post with "Yikes."

CoreWeave's co-head of global fixed income strategy, Luis Alvarado, called the company's balance sheet "relatively bad" compared to other neoclouds, which are emerging cloud providers focused on AI workloads. As a result, CoreWeave's stock dropped more than 15.5% and investors bought a significant number of put options, indicating concerns about the company's financial health.

Other neoclouds, such as DigitalOcean, TeraWulf Inc., and Hut 8 Corp., also experienced declines in their stock prices, falling more than 10%. Oracle, a non-neocloud but also heavily leveraged for its data center expansion, closed 8.8% lower. Suppliers such as Dell Technologies and Advanced Micro Devices also saw significant declines in their stock prices due to the overall selloff of neocloud shares.

CoreWeave CEO Mike Intrator addressed the market's misunderstanding of the company's situation in a memo to employees, expressing confidence in their backlog of cloud contracts with major companies like Microsoft, Meta, and OpenAI.