CoreWeave stock is getting pummeled as investors remain concerned about the neocloud industry. It dropped to $65 in the extended session, down by 53% from its highest level this year, erasing billions of dollars in value. With its bond yields soaring, there is a risk that the sell-off may continue.
CoreWeave is facing major headwinds
CoreWeave, a former Bitcoin mining company, has become one of the biggest players in the neocloud industry. It has achieved a revenue backlog of over $104 billion and scooped the biggest companies in the space as clients.
This growth, however, is coming at a cost as the total debt has jumped has jumped to nearly $30 billion. Its outstanding shares have also continued rising in the past few months, a sign that investors are being diluted.
The stock is now dropping for several reasons. First, in a recent report, Gartner said that neocloud companies and hyperscalers will continue their spending spree in the next few years. However, the report also warned that neocloud companies will be the most affected by the potential large writedowns that will happen in 2030.
The main issue is that CoreWeave is spending billions of dollars buying GPUs and servers to fund the AI boom. In terms of depreciation, CoreWeave and other similar companies believe that the useful life will be about 6 years. After that, they intend to sell these GPUs at a good price.
Some analysts believe that these companies are being highly optimistic about this. Michael Burry notes that the useful life is about two to three years as the current version of GPUs will be overtaken by newer advanced ones. Just this week, Microsoft unveiled Azure Maia 300, which it believes is more capable than Nvidia’s.
CoreWeave is already announcing large depreciation. It recently announced depreciation and amortization of over $1.3 billion, a significant amount considering that its total revenue was $2.57 billion.
These fears have led to a surge in CoreWeave’s bond yields. Its bonds that are maturing in 2032 are now yielding at 14.30%, up sharply from the year-to-date low of 9.4%. These yields are a sign that investors are seeking a higher premium to hold its debt. This means that the company will now need to spend more money on its debt. In the last earnings report, the company said that its interest expense rose to $640 million.
CoreWeave stock price analysis
CRWV stock chart | Source: TradingView
The daily chart shows that the CRWV stock has slipped in the past few months. This sell-off intensified this week as investors reacted to the rising risks. It has now slipped below the important support level of $78.17, its lowest level on September 17 this year.
CoreWeave has dropped below the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bears have prevailed. Therefore, the path of the least resistance for the stock is downwards, with the next target being at $50. A move above the resistance level of $75 will invalidate the bearish outlook.
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