In Austin Powers: International Man of Mystery, a Virtuocon guard famously stands in front of a commandeered steamroller, screaming "No!!" three times before being run over. The joke, of course, is that the hazard moved so slowly he had ample time to step out of the way.
For months, equity traders holding CoreWeave (CRWV) have played that guard. Despite credit markets flashing warnings, equity holders essentially just stood there. Now, after a shocking 27.5% drop from last Friday's close to this Thursday morning's 52-week lows, followed by a whiplash 17% rebound, equity investors, if not squashed like Dr. Evil's henchman, are dazed and confused. Shares are down another 5% today.
With earnings just a few weeks away, massive leverage, a heavily split sell-side, and 15.4% short interest, the stock remains primed for explosive volatility.
The hazard approaching CRWV equity wasn't hidden. The AI cloud infrastructure platform essentially didn't exist five years ago and has accumulated $51.6 billion in debt (~$46 billion net of cash) against a backdrop of zero historical profitability. That was well known, but the CEO's comments that the company aspired to be investment grade so it could borrow "unlimited sums", even as investors already anticipated nearly another $60 billion in debt in the next 18months, spooked folks. (Trick or Treat!) Especially since the debt issued only in June had already fallen 20% since.
From an options trader's point of view, it was hard to reconcile deteriorating credit and rising leverage with falling options premia; as recently as last week, they were in the 6th percentile, 1.5 standard deviations below the one-year mean. At 72%, options weren't cheap in absolute terms, but given everything going on, they should have been higher. The stock also looked somewhat complacent, with the equity chopping around historical support levels dating back to May 2025. The credit side was on tilt: