CoreWeave (CRWV.US) plunges 15%: Citi (C.US) says rate pressures hit Neocloud, Microsoft (MSFT.US) cash flow advantage stands out

According to Woofun AI, Citigroup (C.US) analyst Tyler Radke has made a clear distinction between Microsoft (MSFT.US) and emerging cloud computing companies (Neocloud) amid intensifying funding tensions in the AI sector. He lists Microsoft (MSFT.US) as a core bullish pick, believing that in a macro cycle of rising interest rates, Microsoft (MSFT.US), with its solid financial structure, offers far greater investment value than Neocloud companies such as CoreWeave (CRWV.US), which rely on high-leverage expansion.

Last week, CoreWeave (CRWV.US) saw its stock price plunge 15% in a single day; this sharp fluctuation was not due to weak demand, but rather a direct result of rising interest rate pressures. As Co-Head of Citigroup's (C.US) U.S. Software Research division, Radke pointed out that despite NVIDIA (NVDA.US) H100 chip rental prices approaching all-time highs, bond yields on CoreWeave (CRWV.US) issuances have neared 15%. Since March, the yield on 10-year U.S. Treasury bonds has increased by about 30%, posing a serious challenge to borrowing companies lacking investment-grade credit ratings. Venture capitalist Chamath Palihapitiya shared relevant bond yield charts on platform X, and Fortune reported on the drop in CoreWeave's (CRWV.US) stock price.

Meanwhile, Oracle (ORCL.US), which has also taken on heavy debt to build data centers, saw its stock price fall by 8.8%. According to data compiled by Woofun AI, the current market is facing a structural risk of excessive AI-related debt, with high borrowing costs eroding the profitability of Neocloud companies.

On industry prospects, research institution Gartner forecasts that by 2030, 80% of Neocloud companies will lose their ability to operate independently. Radke told CNBC that higher borrowing costs will eventually be passed on to future contract prices between Neocloud companies and their customers, and he believes the bond market is the key force shaping the current landscape.

Although CoreWeave (CRWV.US) claims that contracts in hand can cover all its debt, Microsoft (MSFT.US), with positive free cash flow and no reliance on debt markets, does not need to worry about the rate at which AI chips depreciate or financing risks. By contrast, while data analytics software company Palantir (PLTR.US) is profitable, Microsoft's (MSFT.US) debt-free characteristic is more defensive. This stands in stark contrast to Tom Lee's suggestion to buy Neocloud and chip stocks after Friday’s price declines; Radke does not see chip stocks outperforming software stocks as a long-term norm.

Radke's assessment is based on the assumption that customers will ultimately have to accept higher contract prices. Until that moment arrives, bond investors still hold the pricing power over AI infrastructure financing. If Neocloud companies are unable to pass on the high debt costs through contract pricing, their business models will face fundamental challenges. As the interest rate environment continues to exert pressure, tech giants with robust cash flow and no debt burden will secure a more stable strategic position in the AI infrastructure race.