Shares of Oracle Corp., DigitalOcean Inc.. and several other tech firms dropped today after a chart about CoreWeave Holdings Inc.’s finances went viral on X.
CoreWeave operates a cloud platform optimized for artificial intelligence workloads. The company has grown its data center network from 3 facilities to 51 over the past four years. It financed much of that buildout with debt, which is what led to today’s stock selloff.
CoreWeave reportedly has $50 billion in outstanding obligations. It raised a significant portion of the financing by issuing bonds, debt instruments that investors can buy and sell like stocks. A drop in bond prices indicates that investors are concerned about the issuer’s financial performance.
On Tuesday, venture capitalist Chamath Palihapitiya started an X discussion about a $1.25 billion batch of CoreWave bonds. He posted a graph that showed the instruments’ yield briefly passed 15%. A yield increase is usually caused by a decrease in bond prices, which in turn indicates an investor selloff.
SpaceX Corp. chief executive Elon Musk, whose company operates X, replied with the word “Yikes” to the post. Luis Alvarado, the co-head of global fixed income strategy at the Wells Fargo Investment Institute, told CNBC that CoreWeave’s balance sheet is “relatively bad” compared to other neoclouds. A neocloud is an emerging cloud provider focused on AI workloads.
CoreWeave’s shareholders took note of the discussion: its stock plummeted more than 15.5% today. Additionally, investors bought a significant number of CoreWeave puts. Those are financial instruments for which demand tends to rise when there are concerns about a company’s financial performance.
Other neoclouds also took a hit. DigitalOcean, TeraWulf Inc. and Hut 8 Corp. saw their respective share prices decline by more than 10%. Oracle Corp., which isn’t a neocloud but has borrowed heavily to finance its data center builtout, closed 8.8% lower.
Even some upstream suppliers got caught up in the selloff. Dell Technologies Inc. and Advanced Micro Devices Inc., which both count multiple neoclouds as customers, closed about 11.3% and 5.73% lower today, respectively.
CoreWeave chief executive officer Mike Intrator reportedly wrote in a memo to employees that “when you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally. We are confident in our backlog which more than supports all of our debt obligations.”
CoreWeave’s backlog, a metric that measures expected revenue from cloud contracts, stood at $104 billion in June. Much of that sum is tied to infrastructure deals with Microsoft Corp., Meta Platforms Inc. and OpenAI Group PBC.