CoreWeave's bonds experienced a significant drop after news broke that Meta Platforms is preparing to enter the cloud infrastructure market, offering access to AI computing power. This news is particularly impactful for CoreWeave, as its total contracted spend with Meta amounts to approximately $35.2 billion through 2032, representing over one-third of CoreWeave's entire backlog. Nebius Group, another neocloud provider, also saw similar or steeper losses. D.A. Davidson analyst Gil Luria described the development as "very negative" for both companies, highlighting the risk of a major client becoming a direct competitor.
The bond market reaction for CoreWeave reflects a recalculation of future cash flows, as high-yield debt is priced on the expectation of stable revenue. When a company derives over 33% of its business from a client that may soon exit, bond spreads widen. CoreWeave has been aggressively financing its expansion with high-yield bonds and convertible notes for a multi-gigawatt AI infrastructure buildout. This strategy becomes significantly riskier when the largest customer is establishing a competing operation, potentially undercutting prices for GPU rental services.
Meanwhile, SoftBank Group has re-entered discussions for a $10 billion loan, backed by its stake in OpenAI, after earlier attempts stalled due to challenges in valuing private companies. SoftBank has committed more than $60 billion to OpenAI and related AI infrastructure projects. To alleviate lender concerns, SoftBank is now offering to guarantee repayment and has been exploring similar asset-backed financing options for other investments, including its stake in Arm Holdings. The lending consortium is expected to include Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group.
Meta's proposed business, Meta Compute, would lease its surplus computing capacity from its data centers to external customers, offering either raw GPU capacity or AI-related services. This move challenges Meta's traditional advertising-based model and pits it against established cloud infrastructure giants and neocloud companies. Although some analysts downplay the immediate impact on the broader cloud market, the prospect of Meta monetizing its extensive AI infrastructure generates concerns about market oversupply and pricing pressure for companies like CoreWeave and Nebius. Meta's CEO, Mark Zuckerberg, had previously hinted at the possibility of selling surplus computing power.
Bernstein, for instance, maintained an "Outperform" rating on Meta with an $850 price target, while simultaneously maintaining an "Underperform" rating on CoreWeave with a $67 price target, citing direct competition. UBS and Nomura, however, suggested that Meta's move might signify structural idle capacity rather than an overall market surplus, as external enterprises continue to seek computing power, indicating tight market conditions overall.
