Just last week I was on the call with a a techy architect from one of the major-major financial services companies, and he was discussing getting token capacity and his words on third best option was "we'd get it from Coreweave or whoever is still alive". So yeah, I am pretty sure that if that's the sentiment from software people at the major-major financial company, Coreweave is cooked.
Aside from the price signal, the fact they were issuing these at a 9.625% coupon rate continues to run up their future debt servicing costs.
Coreweave doesnt seem to be in a winner-take-all sector, they have a narrow moat and will have high ongoing capex. I struggle to see how they dont go under eventually even with the ability to restructure debt
That’s edging up on credit card rates for strong borrowers wild. NerdWallet has Chase Freedom with a lower bound of 18.49% and Citi Diamond Preferred with 16.74%.
Hyperscalers and SPVs are still planning on accelerating the buildout in 2027. Also even if everything hit the fan tomorrow, it will take time for production to shift back into consumer products if that's even what companies decide to shift to.
The yield is bounded from below by the treasury yield, which is just a little lower - and with the treasury you have really big problems if they default! But realistically the US will inflate its currency rather than default, so the yield is really just reflecting expected future inflation. It’s not as great a deal as it seems. Bonds are probably the most fairly priced assets in the world.
The treasury is having daily rates of 4.56% at 2 year bond and 4.88% at 10 years rate.
Yes, Google has a very small risk but still it is a non zero risk that google can bankrupt whereas US govt can physically not bankrupt itself given that it can print the money (there could only be some gridlock within raising the ceiling though but that's true)
Also I would argue that Google itself has changed with trillions of dollars spent into AI/Datacenters, it simply can't pivot as well. There is a reason as to why Google is having such high level of interest rate
Google isn't stupid and wants to give such high level of interests if not for the amount of risk involved. I dont believe that there's free lunch but also that perhaps this can be a good deal to some and this is gonna push people even more away from the more riskier neoclouds funding and cause their debts to rise in interests rate even more.
- No one has available tokens/gpus/datacenter for sale at any price
- No one will lend people money to build it
Coreweave doesnt seem to be in a winner-take-all sector, they have a narrow moat and will have high ongoing capex. I struggle to see how they dont go under eventually even with the ability to restructure debt
https://www.nerdwallet.com/credit-cards/best
That's a great return for practically zero risk.
(If google defaults on bonds there's much bigger problems in the world than the loss of your capital)
That being said, inflation is at 3.7% YoY and it's the real rate that maters, not the nominal one.
Yes, Google has a very small risk but still it is a non zero risk that google can bankrupt whereas US govt can physically not bankrupt itself given that it can print the money (there could only be some gridlock within raising the ceiling though but that's true)
Also I would argue that Google itself has changed with trillions of dollars spent into AI/Datacenters, it simply can't pivot as well. There is a reason as to why Google is having such high level of interest rate
Google isn't stupid and wants to give such high level of interests if not for the amount of risk involved. I dont believe that there's free lunch but also that perhaps this can be a good deal to some and this is gonna push people even more away from the more riskier neoclouds funding and cause their debts to rise in interests rate even more.