In the high-stakes world of Wall Street, conviction often defines success. John Lloyd, the global head of multi-sector and corporate credit at Janus Henderson, embodies this principle with his unwavering belief in CoreWeave, an AI infrastructure provider whose debt has recently landed in distressed territory. Despite elevated bond yields nearing 16% and credit default swaps signaling significant market skepticism, Lloyd's Janus Henderson Multi-Sector Income Fund is holding firm on its CoreWeave 9.75% bonds due in 2031.
CoreWeave's journey has been a whirlwind of rapid expansion fueled by substantial debt, including approximately $35 billion in notes, bonds, and loans as part of its $51.6 billion total debt. This aggressive build-out of data centers has triggered market jitters, evidenced by a 20% tumble in its stock and five-year credit default swap spreads soaring to 1,081 basis points—a clear indicator of credit distress. Yet, Lloyd dismisses this as an "overreaction."
"I don't see a huge fundamental change in the ecosystem right now that would warrant that, other than their higher cost of financing," Lloyd shared with CNBC, suggesting the company has avenues to navigate its funding challenges. He acknowledges that rising Treasury rates have amplified refinance risk for debt-heavy companies like CoreWeave, but he believes the neocloud company is merely encountering a temporary "bump in the road."
CoreWeave's financial metrics present a stark picture: a debt-to-equity ratio of 702%, up from 290% a year ago, and projected capital expenditures of $36.4 billion this year far outweighing its $7.5 billion in EBITDA. While analysts anticipate revenue and EBITDA to surge to $26.5 billion and $16.7 billion respectively next year, capex is also expected to climb to $47.9 billion, implying a continued need for external financing.
Lloyd remains unfazed, highlighting several "creative" funding solutions. He expects CoreWeave to generate sufficient operating free-cash flow next year to cover a portion of its capex. Furthermore, the company could leverage GPU financing—borrowing against its graphics processing units or rental contracts. Strategic customer prepayments from giants like Microsoft, Meta Platforms, and OpenAI also offer a potent funding stream. "They can probably get creative enough where they don't even need to come to the high-yield market," Lloyd asserted, adding that CoreWeave faces no immediate refinancing risk due to a lack of near-term maturities.
Beyond financing, Lloyd sees strong underlying fundamentals. The AI compute landscape is characterized by tight supply/demand dynamics, with adoption rates surpassing consensus forecasts and critical components like chips and memory power consistently sold out. This scarcity positions CoreWeave favorably. "CoreWeave is one of the best-in-class at getting data centers up and actually running them," he states, pointing to the company's improving financials throughout the year.
Further market reassurance could come from anticipated IPOs of frontier AI labs like Anthropic (expected in November) and OpenAI. Successful public debuts would validate the burgeoning AI demand, soothing market nerves around neocloud operators. While CoreWeave must still convince the market of its resilience against higher rates and financing bottlenecks, Lloyd is confident in its ability to recover, though he cautions, "just not in that straight line."
— Gina Francolla contributed reporting.
