Nvidia's "favored ally" sees 5 consecutive declines, memory price fluctuations spark Wall Street concerns

CoreWeave has posted five consecutive losing trading sessions, with a cumulative decline of 14.3%, and its share price has tumbled 46% over the past year.

Although CoreWeave operates under the wing of NVIDIA, Wall Street has long maintained a cautious stance toward its investment-grade credit profile and its financing strategy in AI infrastructure development. Now, rising interest rate risks and sharp fluctuations in memory prices are emerging as new headwinds for this AI-native cloud provider.

On Wednesday this week, CoreWeave's stock price fell 3.5%, extending its losing streak to five consecutive trading days with a total decline of 14.3%. The stock has already dropped 46% in the past 12 months.

Prior to this latest downturn, the stock had plummeted 19% across a six-session losing streak ending June 29. Before that June slump, this "rising cloud giant" had not recorded a losing run of at least five trading days since early March.

Multiple Wall Street sell-side firms have kept their ratings on the stock recently, and the average of their target prices implies a 75% potential upside from current levels.

Heavy Debt Burden

CoreWeave, a publicly traded AI computing cloud firm heavily backed by NVIDIA, is widely known as NVIDIA's "favored affiliate". The company's core business focuses on GPU computing power and AI storage leasing, and it has delivered rapid revenue growth in recent years riding the explosive demand for AI computing resources.

This AI cloud infrastructure giant with a market cap exceeding $42 billion has posted a robust 130% revenue surge over the past 12 months, yet it still faces significant operational headwinds.

US stock investment research platform InvestingPro notes that CoreWeave is burning cash at an extremely fast pace and carries a substantial debt load, with a debt-to-equity ratio as high as 7.39.

Gil Luria, an analyst at D.A. Davidson, told media outlets that given CoreWeave's "extremely high exposure to debt financing", rising interest rates and tightening capital liquidity could become "problems unique to CoreWeave".

Jay Goldberg, an analyst at US stock research platform Seaport Research, stated that relevant media reports combined with broader interest rate concerns have jointly driven the stock's recent weak performance.

Last week, concerns over interest rate hikes intensified after the Federal Reserve's meeting minutes revealed that officials had noted "justifications for a rate increase in June". Since then, as US inflation data came in weaker than expected, traders have scaled back their expectations for interest rate hikes.

Financial Derivatives Hedging

CoreWeave has signed long-term agreements with chip giants including Micron Technology to purchase memory products, and these contracts typically include price floor clauses. As memory demand outpaced supply, prices previously surged all the way up — sparking market concerns over how long the supply shortage could last and what protective measures CoreWeave has in place if prices decline.

Price floor clauses are a double-edged sword: if market prices drop sharply in the future, CoreWeave will still be bound by the higher contractual floor price, exposing it to significant risks of elevated costs and inventory impairment.

Several media outlets have reported that CoreWeave is exploring the use of financial derivatives (including put options) to hedge against the risk of a sharp drop in memory prices.

Gil Luria, analyst at US brokerage and investment bank D.A. Davidson, noted:

"Amid the increasingly fierce competition in its core AI cloud business, investors may grow weary of CoreWeave's attempts to stabilize its financial performance through financial derivatives."

Industry insiders point out that Meta serves as CoreWeave's core customer, and the two parties previously signed a long-term computing infrastructure procurement contract worth up to $21 billion, which acts as a key pillar supporting CoreWeave's order backlog and stabilizing its medium- and long-term cash flow.

However, Wall Street worries that this structure of heavy reliance on a single core customer is facing potential risks. As tech giants like Meta ramp up self-built data center construction and accelerate in-house AI chip R&D, their future demand for third-party cloud computing power leasing may gradually slow down. This underlying concern is exerting a notable impact on CoreWeave's valuation across three dimensions: order expectations, industry competition, and profit margins.

This article is sourced from the WeChat Official Account "Star Market Daily", authored by Li Ying, and published with authorization from 36Kr.