r/CRWV

Magnetar Capital, CoreWeave, Inc. CRWV -6.03%↓ largest institutional backer, faced major controversy for its role in the 2008 financial crisis through a strategy dubbed the “Magnetar Trade.” The hedge fund allegedly helped create and finance risky Collateralized Debt Obligations (CDOs) while simultaneously betting that these same investments would collapse.

The Magnetar Trade generated significant backlash and media scrutiny, most notably through an investigative series by ProPublica. Critics accused Magnetar of intentionally encouraging investment banks to bundle the riskiest, lowest-quality subprime mortgages into CDOs. 

Because Magnetar had protected itself against losses by purchasing credit default swaps, it stood to make massive profits when the housing market inevitably crashed and the CDOs became worthless:

“ In late 2005, the booming U.S. housing market seemed to be slowing. The Federal Reserve had begun raising interest rates. Subprime mortgage company shares were falling. Investors began to balk at buying complex mortgage securities. The housing bubble, which had propelled a historic growth in home prices, seemed poised to deflate. And if it had, the great financial crisis of 2008, which produced the Great Recession of 2008-09, might have come sooner and been less severe.

At just that moment, a few savvy financial engineers at a suburban Chicago hedge fund helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages.

When the crash came, nearly all of these securities became worthless, a loss of an estimated $40 billion paid by investors, the investment banks who helped bring them into the world, and, eventually, American taxpayers.

Yet the hedge fund, named Magnetar for the super-magnetic field created by the last moments of a dying star, earned outsized returns in the year the financial crisis began.

How Magnetar pulled this off is one of the untold stories of the meltdown. Only a small group of Wall Street insiders was privy to what became known as the Magnetar Trade.”

The Magnetar connection is a serious red flag that ought to be a major issue of concern for potential investors.

Even though the stock market hasn't been particularly favorable over the past few weeks, I still believe CoreWeave has very strong long-term potential.

• Countries around the world are racing to become independent in AI capabilities. And AI means compute. CoreWeave is a US-based company operating in what remains the world's leading economic power. It seems likely that governments and public institutions will continue investing heavily in domestic AI infrastructure.
• Providing high-performance computing resources to public institutions and researchers is another major advantage. As someone working in robotics and AI research, I see firsthand how valuable it is to access massive computational power without dealing with the cost, maintenance, and constraints of owning the hardware.
• The world is becoming increasingly digital, and the AI boom is still in its early stages. Many of the breakthroughs we see today in robotics, autonomous systems, and large-scale AI models are only possible thanks to enormous amounts of compute. Training a humanoid robot to perform tasks as simple as standing up or walking can require tens of thousands of GPU hours.

CoreWeave's debt is undeniably one of the biggest risks in the investment case. However, building AI infrastructure requires enormous upfront capital expenditure, and management has chosen to prioritize scale and market share during what could be the early stages of an unprecedented compute cycle. The question for investors is whether future demand growth will be sufficient to justify today's leverage.

As long as the GPU shortage persists, companies that already own and operate large-scale GPU clusters, such as CoreWeave, may benefit from stronger pricing power and higher barriers to entry. Let's see what the future is about

This feels well oversold and earnings run up soon.

Link to post: https://x.com/qinbafrank/status/2072502678715064665?s=20

I recommend that everyone read the post to understand what happened today.

A few points,

• The sell-off appears to have been triggered by Bloomberg's original headline, which stated Meta was building a cloud business to sell "excess AI compute." Bloomberg later revised the headline, removing the word "excess" and changing "building" to "planning."
• The market reacted to the implication of "excess," not simply Meta entering the cloud business. That one word sparked fears that Meta had overbuilt AI infrastructure, leading investors to extrapolate that other hyperscalers may also have overbought GPUs.
• The price action didn't fully support the "AI demand is collapsing" narrative. Meta rallied nearly 10%, while CoreWeave and Nebius dropped sharply. If investors truly believed AI demand was weakening, Meta likely wouldn't be one of the strongest performers today.
• Meta excess compute story is doubtful because they have been signing third-party compute contracts nonstop lately.
• Meta’s stock surged nearly 10% intraday and closed up 8%. Zuckerberg probably won’t even come out to debunk this; he’s finally getting a chance to exhale.

Meta's move into AI cloud infrastructure is a reminder that the biggest competitive risk to neocloud providers isn't demand it's the hyperscalers becoming suppliers themselves.

If Meta begins commercializing excess AI compute, it adds another deep-pocketed player with virtually unlimited capital, proprietary chips, and world-class infrastructure. That puts pricing power and margins across the neocloud ecosystem under pressure. Investors have been valuing companies like CoreWeave (CRWV) on scarcity; if supply expands materially, that premium can compress quickly. Today's market reaction reflects that concern.

Could CRWV fall another 50%? It's possible if investors conclude that long-term pricing power, utilization, or customer concentration will deteriorate. However, that outcome is far from certain. AI compute demand remains exceptionally strong, and it is not yet clear how aggressively Meta will compete or how much excess capacity it will actually bring to market.

For now, the news increases uncertainty and likely warrants lower valuation multiples not necessarily a collapse in the underlying business.

Down 8% premarket. Any ideas what is going on?

can somebody explain what this does to us? long time coreweave stock holder and would like technical analysis on this