CRWV: bond yields of 15-16% signal distress, $640 million interest eats a quarter of revenue, Bernstein cut it on a possible $85 billion capital need; offsetting, revenue rose 112% to $2.6 billion at 59% margin, backlog up 246%. He doesn't own it as too risky for his portfolio; analysts see over 150% upside.

Okay, this now leads us to the third purchase. This was actually the largest of the three operations, as we have CoreWave, a company specializing in artificial intelligence cloud, whose stock market symbol is CRWV.

This is something Kathy has focused on strongly recently, spending nearly $46 million through her funds to acquire more than 825,000 shares in the last month alone.

Now, if you’ve been following the headlines lately, you know that CoreWeave has been point zero for the recent panic and sell-off in the tech sector, having lost nearly 40 % of its value in the last month alone, and more than half of its total value since its peak.

This is a stark contrast to the strong performance the company experienced after its initial public offering last year.

Well, once again , we are faced with a major sell-off of AI stocks that has little to do with customer demand, but rather primarily with their balance sheet and debt market. Unlike traditional cloud computing companies that have huge profits from advertising or software to fund their data centers, CoreWeave is a specialized cloud operator .

This means they are building high-performance data centers filled with Nvidia graphics processors, and then leasing that specialized computing power to various AI labs and companies.

To build this capacity quickly, which is extremely important, by the way, because you really want to take advantage of all the huge demand you see right now as quickly as possible.

To do so, and as a result, they had to borrow heavily, which accumulated to about $50 billion of their total debt.

Recently, CoreWeave bond yields in the secondary market jumped to 15 and 16%. To put that in context, when secondary yields rise to this level, Wall Street begins to classify those debts as " distressed".

This means that bond traders are concerned that CoreWeave will not be able to afford its financing costs.

In the last quarter, for example, net interest expenses alone rose to $640 million, eating up about a quarter of their total revenue. Shortly thereafter , analysts at Bernstein downgraded the stock to "underperforming," warning that CoreWeave might need around $85 billion in capital to fully fund its expansion .

So, if you combine the huge sums required to run their businesses with the high interest costs resulting from all this borrowing in the current high interest rate environment, add to that the concerns about future stock dilution.

The result is that the market simply resorted to panic selling the stock to get rid of the whole situation, so to speak.

But here's the other side of the coin, and it's a very important one. The reason behind Cathay Wood's heavy buying during this crash is that while Wall Street is panicking over debt, underlying demand for Coreweave's computing platform is skyrocketing.

In the last quarter, for example, revenues rose 112% year-on-year, reaching $2.6 billion. Meanwhile, adjusted earnings before interest, taxes, depreciation and amortization rose to $1.5 billion with a profit margin of 59%.

In fact, these operations could technically have very high profit margins were it not for the enormous capital expenditures required initially to build all of this.

In fact, according to Seeking Alpha, Coreweave stock will technically trade at about 30% below the sector average, and about 80% cheaper in terms of operating cash flow as well.

But again, the reason for this is that sales and operating cash flow do not take into account huge capital expenditures. Therefore, even if we wanted to value this stock based on net income or free cash flow, which would be more accurate and appropriate in this case to determine the true value, we would not be able to do so because they are losing billions of dollars annually.

But this illustrates that without those massive capital outlays and heavy initial spending, this business would have been high-margin and trading at a significant discount after this crash, which I assume is Cathy's optimistic view of the stock. This is probably her main argument for that.

And it's not a crazy argument at all, by the way. When you take into account the huge demand and order history , you'll find that they have backlogs that have increased by 246% to $104 billion, which management noted does not include another $25 billion of new customer commitments in early third quarter.

Therefore, I assume the long-term goal is to complete the construction and full operation of these data centers, eventually reaching a point where spending can be reduced and it is sufficient to operate these massive centers and upgrade their equipment as needed.

So, having this support and the ability to gain early access to Nvidia's best products thanks to it is also a significant advantage for them. And I feel it helps them to stand out a little bit, in a field that is becoming increasingly crowded with regard to what they do.

Now, time will tell who will ultimately be right about all this, whether it's the optimists, the pessimists, or anyone else. But for me personally, it is not a stock that I own myself, at least not yet.

You know, the reason is simply that I already own a lot of AI data center stocks , and I have a lot of exposure to things similar to what Korwef is doing, and even to parallel markets to it . This is all a little more than I can bear.

I already own my large, profitable, and well-diversified stock portfolio, and I sleep soundly with it, while with Korwef, I think I might feel a little nervous owning it, but I'm not saying it's not worth betting on.

And certainly for Cathay Wood, I think it suits her requirements. She, you know, is always looking for those high-risk, high-tech names, and she tends to look for stocks that are falling in price and try to find value in that as well.

I think it's really looking for big long-term recovery opportunities as well.

Again, I am not defending her, her strategies, or anything like that . I'm just saying that this is what I think she's really looking for . As for her, I think a name like that makes sense.

But for me personally, it is not the stock that suits my investment portfolio at the moment .

But wait, for the record, out of 41 analysts covering the stock, they still expect it to rise by more than 150% from current levels.