JPMorgan on Tuesday estimated that most banks worldwide have limited exposure to CoreWeave, Inc. (NASDAQ: CRWV), after shares and bonds of the Nvidia-backed cloud services company plunged last week amid investor concerns over its debt financing. Artificial intelligence (AI) infrastructure spending is making global investors uneasy. To achieve rapid expansion, technology companies have been raising large amounts of capital through private credit, bank loans, and bond markets, while doubts are mounting over whether these investments will generate commensurate returns.
JPMorgan said exposure to CoreWeave, Inc. (NASDAQ: CRWV) among large U.S. investment banks and Japan's Mitsubishi UFJ Financial Group (MUFG) could range between $1 billion and $3 billion, while most European and Asian institutions have exposure of less than $500 million. JPMorgan said a significant portion of this was provided in the form of "delayed draw term loans." These loans are primarily held through special purpose vehicles (SPVs), with funds disbursed gradually as projects reach predetermined milestones.
The analyst team led by Kian Abouhossein at JPMorgan noted in a report: "From the perspective of the banks providing the financing, we believe these banks have managed their exposure to CoreWeave well and have very solid collateral." The brokerage said the assessment was based on "simplified assumptions" because disclosure by banks regarding their exposure to the AI investment cycle is very limited.
JPMorgan upgraded CoreWeave, Inc. (NASDAQ: CRWV) stock from "neutral" to "overweight" and set a price target of $125 by the end of 2027. According to JPMorgan, the cloud services company has about $24 billion in "delayed draw term loan" capacity, of which $15 billion has been drawn and another $9 billion remains undrawn.
CoreWeave, Inc. (NASDAQ: CRWV) primarily provides high-performance computing infrastructure for the AI sector and has signed contracts totaling tens of billions of dollars with several major technology companies. The company's current debt level is approximately $50 billion. Last week, the yield on CoreWeave bonds maturing in 2031 approached 16%, while the cost of insurance against default on the company's debt also rose to about 1,000 basis points. JPMorgan said the key risk facing banks is the mismatch between upfront investment in AI infrastructure and the revenue generated later, adding that it expects CoreWeave, Inc. (NASDAQ: CRWV) free cash flow to remain negative until 2030.
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