By Jonathan Weil

The tie-up between CoreWeave and Core Scientific was supposed to be a hot deal for the artificial-intelligence sector. Instead they wound up pricking their own bubbly valuations.

The signal from investors: Core Scientific shareholders don't want CoreWeave's bloated stock as payment, and they lack confidence its value will hold up through the fourth quarter when the deal is slated to close.

Core Scientific shares fell sharply after CoreWeave said it would buy the company in an all-stock transaction originally valued at $9 billion. They snapped a five-day losing streak on Monday but remain down 25% since the July 7 deal disclosure.

Core Scientific's stock-market value has dropped to $6 billion, using the same fully diluted share count implied in the deal announcement. That is $1.2 billion less than the current value of the shares CoreWeave is offering. CoreWeave's stock is off 20% over the same period.

The skepticism of Core Scientific shareholders is understandable. With a $64 billion stock-market value, CoreWeave trades for 13 times 2025 revenue estimates and isn't profitable. Last quarter a single customer, Microsoft, accounted for 72% of its sales.

CoreWeave, an AI cloud-computing company that went public earlier this year, is a tenant of Core Scientific, from which it leases data-center infrastructure. It owes Core Scientific more than $10 billion in lease payments over the next 12 years. Core Scientific shareholders appear to believe they can fare better if the companies stay separate.

The simplest explanation for what happened is that CoreWeave's shares were overvalued before the deal announcement and remain so. The Wall Street Journal reported the companies were in deal talks on June 26. Before that, Core Scientific shares were trading at just over $12, about a dollar less than where they are now. By comparison, the deal originally valued Core Scientific at about $20 a share, and still values it at more than $16, or a 21% premium. That is wider than is typical, even for a deal that faces uncertainty.

Usually a company's investors don't flee when a larger suitor offers to buy them out for a premium. The debacle raises bigger questions about whether parts of the AI boom have gotten ahead of themselves. It comes as major stock-market indexes have been setting new highs, marked by unbridled exuberance for AI in particular, but also cryptocurrencies and other speculative bets.

CoreWeave went public in March at $40 a share. By late June it had more than quadrupled to $187. Only about 47 million, or 13%, of CoreWeave's listed shares are available for public trading. The thin float helped fuel the stock's ascendance, creating a bottleneck for investors trying to buy the stock on the way up.

It also made the cost to borrow the shares extremely expensive for short sellers, which reduced opportunities for arbitragers to profit from any price inefficiencies. Of course, Core Scientific shareholders don't have to short CoreWeave's stock to express a bearish view on it. They can simply sell their Core Scientific shares and walk away.

Another concern is the Sept. 24 expiration date of CoreWeave's shareholder-lockup agreement. Starting then, insiders and early investors will be free to sell about 290 million more shares on the public market. The overhang could weigh on CoreWeave's stock before the deal closes.

Judging by the outsize deal spread, though, the deal could foreseeably fall apart. In the process of making an offer that Core Scientific shareholders appear not to want, CoreWeave wound up tanking its own valuation. For a company riding the artificial-intelligence wave, that isn't looking so bright.

Write to Jonathan Weil at jonathan.weil@wsj.com

(END) Dow Jones Newswires

July 15, 2025 05:30 ET (09:30 GMT)

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