CoreWeave is currently facing skepticism in the market due to its substantial debt, which totals approximately $51.6 billion, including $35 billion in notes, bonds, and loans. Despite this, John Lloyd, the global head of multi-sector and corporate credit at Janus Henderson, argues that the recent sell-off in CoreWeave's bonds, which have yields exceeding 15%, is an overreaction.
He notes that while the company's stock has dropped 20% in the past week and its credit default swap spreads have widened significantly, there hasn't been a fundamental change in the company's ecosystem that would justify such a decline.
CoreWeave's high debt-to-equity ratio of 702% and its projected capital expenditures of $36.4 billion against an EBITDA of $7.5 billion this year raise concerns about its financing capabilities. However, Lloyd believes that CoreWeave can creatively manage its financing needs through methods such as GPU financing and increased prepayments from major clients like Microsoft and OpenAI.
He also points out that the demand for AI compute resources remains strong, which could support CoreWeave's business model. Although the company faces challenges, Lloyd is optimistic about its ability to recover and navigate the current financial landscape, suggesting that the bonds may eventually rebound, albeit not in a straight line