CoreWeave and Nebius Stocks Are Crashing. Time to Buy the Dip?

The past week has been a tough one for shareholders of Nebius (NBIS) and CoreWeave (CRWV). Both stocks saw a 25% decline. This significant drop has left investors concerned. However, should they be worried, or is it an opportunity to buy the dip? Let's examine the situation. The main factor behind the sell-off is the soaring yield on CoreWeave's debt in the secondary market, reaching an alarming 15%.

This is alarming because the current risk-free yield on Treasuries is only 5%. A 10% difference in yield makes CoreWeave's debt "distressed," meaning it's riskier than "junk" bonds. This signals to investors that CoreWeave might struggle to meet its debt obligations. Nebius, operating in the same neocloud computing industry, also saw its stock dip, following CoreWeave's downturn.

Both companies rely heavily on debt to expand their data centers and compete with AI hyperscalers. They don't have a core business to fund this growth, so they must issue shares or debt to build their infrastructure. The concern isn't just about the current debt situation; it's about future debt issuances. With high yields on bonds, issuing more debt to sustain growth could be challenging and potentially unprofitable.

This market situation could pose a significant problem for these companies, depending on how it resolves. The validity of buying the dip in these stocks is debatable. While AI development and the growth prospects of CoreWeave and Nebius are promising, the current bond market issues could complicate future debt financing. As of now, I hold Nebius shares but not CoreWeave.

I'm not planning to buy more shares at the moment and am not selling either. It's often wise to wait for market stability before making investment decisions. For more tailored investment advice, consider The Motley Fool's premium services.