It’s been a tumultuous few months for shares of CoreWeave, which have fallen over 50% from their May highs.

As the artificial-intelligence trade hit a fresh speed bump last week, the specialized cloud provider’s business model came under scrutiny yet again. But the extent of the selloff has prompted some analysts to rush to CoreWeave’s defense.

In a Monday note, Goldman Sachs analyst Gabriela Borges called CoreWeave’s setup a lesson in “Finance 101,” noting that the company’s valuation comes down to the spread between what it can charge for its chip-rental business and the company’s cost of capital, or what it costs for CoreWeave to borrow money and raise funds.

CoreWeave has utilized a strategy of borrowing money to outfit data centers with the necessary hardware to run AI workloads, and then leasing out the cloud access to customers. Hotter-than-expected inflation data led CoreWeave shares and bonds to drop sharply last week, as investors worried that rising interest rates would increase CoreWeave’s borrowing costs.

However, Borges believes that investors may be “underestimating the magnitude of upward revisions” to the company’s rate of return on its hardware investments while “overestimating the magnitude of upward revisions” to the company’s cost of capital. The current shortage of processing power on the market should increase the amount of revenue CoreWeave can earn per megawatt of power capacity over the next 24 months, Borges added.

While CoreWeave’s future debt will likely come at a higher interest rate, Borges argues the increase will only amount to 100 to 200 basis points, capping the company’s blended borrowing costs at around 10%. A basis point is one hundredth of a percentage point, or 0.01%.

“Our conversations with credit specialists suggest that CoreWeave should still be able to finance its future expansion plans at a cost of debt that is only modestly higher than its current weighted average cost of debt,” Borges wrote.

CoreWeave’s delayed-draw term loans are placed inside separate corporate vehicles and collateralized by physical hardware and guaranteed customer contracts, often from investment-grade names like Meta and Microsoft. The debt is designed to be paid down over the course of the contract. The key uncertainty for CoreWeave will be whether it can recontract those chips at attractive prices once initial agreements expire, Borges said. She added that the company is taking steps to expand beyond server rentals into proprietary software tools that will make its product stickier.

Other analysts similarly believe that concerns about CoreWeave have become overblown.

In a Monday note, Barclays analyst Ajay Rajadhyaksha drew a direct parallel to the March 2023 regional-banking panic, when the collapse of Silicon Valley Bank triggered fears of an all-out recession. The bond market aggressively priced in up to 100 basis points of interest-rate cuts, only for the Federal Reserve to raise rates and the economy to continue growing.

Last week, the yield on CoreWeave’s unsecured debt reached 15%, putting the bonds into distressed territory. But Rajadhyaksha emphasized that those unsecured notes represent less than $2 billion of CoreWeave’s roughly $35 billion total debt stack.

“Even if the bonds might be rationally priced for their own recovery prospects they could still be being completely wrong as a signal about the viability of the entire AI capex cycle,” Rajadhyaksha wrote, referring to the broader spending boom that big tech companies are partaking in.

At the end of the day, tech giants like Alphabet, Microsoft, Meta and Amazon.com collectively need more processing power than currently exists, Rajadhyaksha added. “As long as that’s true, the financing follows the demand.”