NVIDIA’s Affiliated Company CoreWeave Sees Stock Price Surge: Will the Bull-Bear Standoff Trigger a Short Squeeze?
CoreWeave’s Transformation and Stock Surge
CoreWeave (stock code: CRWV), which successfully transformed from an Ethereum mining company to an AI cloud computing infrastructure provider, went public on Nasdaq in March, with its stock skyrocketing by 163% to date. Although many investors are concerned about its rising debt levels, cash burn rate, and whether its cloud computing services can remain stable in the long term, the enthusiasm of buyers has sparked intense bullish-bearish confrontations.
CoreWeave and Its Close Ties with Nvidia, OpenAI, and Microsoft
Currently, CoreWeave operates 30 data centers and possesses 250,000 GPUs. Recently, it reached a deal with OpenAI worth up to $4 billion to lease computing power to meet artificial intelligence demands. Meanwhile, CoreWeave’s first earnings report of the month shows steady revenue growth, with clients like Microsoft committing to continue investing heavily in AI computing.
Nvidia holds a 7% stake in the company, and due to its close partnership with Nvidia, CoreWeave has priority access to Nvidia’s latest chips, earning it the nickname “Nvidia’s favored child.” Its collaborations with AI companies such as OpenAI and Microsoft also provide it with significant advantages in the AI sector.
CRWV Surge Draws Interest from Short Sellers
However, the bullish sentiment surrounding the company has attracted an increasing number of short sellers, who are actively shorting the stock with no signs of letting up. So far, the company’s supporters have maintained the upper hand, thanks to the relatively limited number of shares available for trading, which may exaggerate stock price fluctuations.
Thus far, this surge has only increased traders’ interest in shorting the stock. According to data from S3 Partners LLC, the percentage of CoreWeave shares borrowed by short sellers has risen from 18% at the end of April to 45% earlier this week.
If the stock price continues to rise, it could lead to significant losses for short sellers, forcing them to cover their positions and repurchase borrowed shares. This could create a buying spiral known as a “short squeeze,” further driving up the stock price. However, Ihor Dusaniwsky, managing director of predictive analytics at S3, stated that he has not yet seen any signs of such capitulation.
At this price level, there are a considerable number of new short positions. Hence, it is highly likely that you will see short positions being squeezed out of the market, only to be immediately replaced by new short positions.
Concerns Over High Debt and Analyst Warning on Risks
For bearish investors, the company’s massive capital requirements, high borrowing costs, and uncertainty regarding the long-term demand for AI services present a dangerous combination. In the first quarter, CoreWeave’s loss per share widened to $1.49, up from $0.62 in the same period last year.
The company aims for capital expenditures of $20 billion to $23 billion this year, which will be funded through debt. According to data compiled by Bloomberg, as of March 31, the company’s debt-to-total-assets ratio stood at 54%, significantly higher than the Nasdaq 100 index’s average of 30%.
Among analysts covering CoreWeave tracked by Bloomberg, over 65% have assigned a hold or sell rating. Analysts believe that the current risk level is excessively high in relation to the business model, with too many uncertainties.
Risk Warning
Investing in cryptocurrencies is highly risky, and prices can be extremely volatile, potentially resulting in a total loss of principal. Please assess risks carefully.
