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Editor’s Note: Nvidia CEO says that “the next wave of AI is physical AI. And he expects a future with “billions of robots.”
That’s why the company is quietly investing in Phase 3 AI. This new initiative could spark record profits for 5 undiscovered stocks.
Go here to get the names and tickers.
CoreWeave (Nasdaq: CRWV) shares fell about 20% this week.
The trouble started in the bond market.
In April, CoreWeave sold $2.75 billion of bonds paying 9.75%. This week those bonds traded around 81 cents on the dollar, which pushed the yield above 15%. The cost of insuring CoreWeave’s debt against default hit a record high. Bond investors usually reserve those levels for companies in serious trouble.
Nvidia’s CEO expects that record demand for compute will continue. That’s largely due to the advancement of Phase 3 AI. Get the full story right here.
The selling spread across the entire neocloud group. Here’s how far the biggest names fell from last Friday’s close through Friday morning:
- CoreWeave: down 20%
- Nebius: down 19%
- IREN: down 17%
- Applied Digital: down 16%
- TeraWulf: down 11%
Shares bounced on Thursday, then slipped again Friday morning.
Here’s the bear case.
CoreWeave carries more than $50 billion in debt and lease obligations. Interest expense hit $640 million last quarter, up from $267 million a year earlier. The company generated $679 million in operating cash flow but spent $6.4 billion on equipment and data centers. And GPUs lose value quickly as Nvidia rolls out a new chip every year.
Gartner added to the worry this week. The research firm warned that 80% of neoclouds could stop operating independently by 2030.
Here’s the bull case.
CoreWeave doesn’t build capacity on speculation. It signs a customer contract first, with companies like Microsoft, Meta, and OpenAI, and then borrows against that contract. Each project sits in its own separate entity. Customer payments cover power, interest, and principal before any cash flows up to the parent company.
CoreWeave has $104 billion in contracted backlog, mostly take-or-pay deals with some of the strongest balance sheets in the world. When Meta is the customer, CoreWeave has borrowed at investment-grade rates around 6%. The 15% yield applies to the unsecured bonds at the parent level, not the entire balance sheet.
Nvidia owns about 10% of CoreWeave.
On Thursday, CEO Jensen Huang said, “CoreWeave’s financial strength is improving every day. I’m optimistic. Their cost of capital is actually decreasing.”
There is one real complication. Interest rates are moving higher.
Wednesday’s hotter inflation report pushed the 10-year Treasury yield toward 5.3%. That makes the next wave of data center projects more expensive to finance for every company in this space. The ones with the strongest customers will get the best terms.
The selling also looks indiscriminate. Nebius has a much stronger balance sheet than CoreWeave, with first major debt maturities in 2029, and it still fell 19%.
This week’s drop also comes on top of a long slide.
That’s a lot of bad news already priced in. For long-term investors willing to buy the dip, this selloff may present an opportunity in the companies building the backbone of the AI economy.
Read tomorrow’s Daily Profit for details on one neocloud stock that could double.
Want to know what comes next for the AI revolution? It’s not chatbots of AI agents. It’s called Phase 3 AI – and Sam Altman, Elon Musk and Nvidia are already placing their bets.
Go here for my urgent briefing.
Ian Wyatt
Editor, Daily Profit