CoreWeave stock crashes 15%, falls further as AI slowdown fears and debt woes hit

CoreWeave, an AI computing company, experienced a significant drop in its stock price on Thursday after a sharp decline on Wednesday. The stock decreased by 15% on Wednesday and further fell by 6% in pre-market trading on Thursday, marking an ongoing challenging period for the company. Investors are concerned about CoreWeave's heavy debt and the sustainability of its business model if artificial intelligence (AI) demand slows down.

These worries have intensified pressure on CoreWeave's stock and bonds. Bernstein analysts remain pessimistic about CoreWeave's long-term business outlook, maintaining an "Underperform" rating on the stock. The analyst's note highlighted that CoreWeave's long-term business model continues to face economic challenges, according to Yahoo Finance.

Fears of a slowdown in AI spending have impacted CoreWeave's corporate bonds, causing investors to sell them across various maturity periods on Wednesday. As bond prices typically fall when investors sell them, this led to higher yields. This sell-off reflects concerns about a potential slowdown in AI and its impact on CoreWeave's already precarious financial position.

Elon Musk's attention was drawn to the rising bond yields, which prompted him to express his concerns with the word "Yikes" on X. Musk's reaction followed a post by venture capitalist Chamath Palihapitiya on the situation, as reported by Yahoo Finance.

A Gartner report further exacerbated concerns about the future of AI infrastructure companies. The research firm forecasted that over 80% of neocloud providers could cease operating independently by 2030, attributing this to cost pressures and a lack of a distinct business model. While CoreWeave operates within the neocloud category mentioned in the report, the Gartner forecast heightened doubts about the long-term viability of such companies.

The warning added to the pressure on CoreWeave's stock, raising questions about the sector's ability to manage costs and create standout businesses amidst investor apprehensions about debt and potential AI demand slowdown.

CoreWeave attempted to defend its business model against these criticisms but failed to assuage investors immediately. The company argued that not all AI infrastructure providers operate in the same way, asserting that some competitors mismanage capital without possessing the necessary execution capabilities, revenue, scale, or software solutions that CoreWeave offers its clients.

Despite pushing back against the criticism, CoreWeave has not managed to ease investor concerns. The company maintains confidence in its customers and business operations, highlighting its quality of operations and financial discipline. However, the market remains skeptical, with falling stock and bond prices indicating that concerns about debt, AI demand, and the neocloud sector's future are weighing on investor confidence.