CoreWeave Just Gave a Shot in the Arm to Micron, Lumentum and the Rest of the AI Trade

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CoreWeave's improved AI economics and its vow to show some discipline around future debt are sparking a broad rally across the chip sector

Micron's stock is rising as part of a broad rally for the chip sector.

CoreWeave helped soothe the artificial-intelligence trade, as shares of key chip companies were up strongly on Wednesday.

Investors had come to view CoreWeave (CRWV) as an AI linchpin of sorts. Though the neocloud company isn't the most well-known one, its reliance on borrowed money spooked investors amid rising fears over a slower AI buildout and the tight financial ties between major players in the AI ecosystem.

But stocks in the "AI-levered complex" are moving sharply higher, Jefferies trading-desk analyst Jeffrey Favuzza noted after CoreWeave calmed nerves on its earnings call. The company discussed its path to profitability, vowed to avoid a particularly risky type of debt, and outlined attractive cloud-computing economics in the current market. For instance, CoreWeave is seeing such high demand that it can charge even more than before for access to older chips.

The company also said it anticipates raising less than $5 billion in additional parent-level capital through the end of 2027 - something Favuzza said is resonating with investors.

CoreWeave's stock is up 19% in morning trading, while shares of fellow neocloud company Nebius Group (NBIS) are up 14%. Neoclouds rent out access to computing power from advanced chips.

Other big winners include optical stocks, with shares of Lumentum Holdings (LITE) up 10%, shares of Coherent (COHR) up 9% and shares of Marvell Technology (MRVL) up 7%. Sandisk's stock (SNDK) is up more than 12%, while Micron Technology's stock (MU) is up more than 9%. Even Nvidia's stock (NVDA) is getting some relief, rising 2% in morning trades.

The iShares Semiconductor ETF SOXX is up 4.4%.

"The biggest question we just have is the magnitude of follow through where it currently feels like a really skittish tape," Favuzza said in his note to clients.

Another factor supporting the chip sector's rally is a Wall Street Journal report discussing OpenAI's financials. The report said that OpenAI is growing quickly, citing a growth rate of approximately 50% between the second and third quarters, leading to $10 billion in revenue. That said, the Wall Street Journal flagged a modest uptick in adjusted losses and noted that rival Anthropic is operating more efficiently.

OpenAI didn't immediately respond to a MarketWatch request for comment.

Investors have focused on the financials of privately held AI companies given their importance in sustaining demand for chips as well as questions about whether their hefty AI spending will deliver appropriate returns.

Don't miss: Anthropic officially sets the stage for an IPO valuing the company north of $1 trillion

-Emily Bary

 

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