Michael Burry, famous for The Big Short, is not the only one bearish on big companies in AI trading.
Seawolf Capital, an investment firm founded by three traders featured in books and movies, said on Friday that it is shorting CoreWeave. The "neocloud" company has seen its stock price plunge recently amid concerns over its debt issues.
Daniel wrote in a Substack article: “It’s hard to disagree with this perspective, so we decided to investigate for ourselves. As we dug deeper into CoreWeave’s story, we began to realize that its business model looked very familiar.”
Vincent, along with Seawolf co-founders and traders Danny Moses and Porter Collins, conducted an in-depth analysis of CoreWeave, focusing on its neocloud business model: generating revenue by leasing AI computing power, primarily delivered through high-performance GPUs from NVIDIA.
Daniel noted that CoreWeave’s business model resembles companies that purchase specific assets and lease them to customers, such as Transocean, which leases drilling platforms to oil companies, and AerCap Holdings, an aircraft equipment leasing company.
Seawolf noted that the company holds positions in both firms but emphasized a stronger preference for them over CoreWeave, as the economic lifespan of GPUs may be shorter than that of oil drilling rigs, aircraft, or shipping equipment.
He said, “We prefer to lease assets whose underlying supply is structurally constrained and whose forward order books are not substantial. Although demand for computing power is undoubtedly strong, the forward supply of competitive chip capacity is expanding at an astonishing rate.”
In addition, Seawolf stated that CoreWeave needs to invest substantial capital to continue purchasing expensive AI chips to sustain its operations.
Daniel noted: “Given the projected free cash flow deficit in 2027 and the current balance sheet leverage—specifically, the ratio of tangible common equity to total assets—this situation is quite severe. For investors to hold this stock, they must believe that CoreWeave can raise hundreds of billions of additional capital under value-enhancing terms—an outcome we are not willing to bet on.”
However, Daniel added that Seawolf’s research on CoreWeave is still in the “early stages.”
This is not the first time the company has raised concerns about CoreWeave. In early October, Moses appeared on the show “The Real Eisman Playbook” alongside another The Big Short investor, Steve Eisman, comparing it to WeWork. WeWork, once a Silicon Valley office-space unicorn, is now regarded as a cautionary tale for tech startups.
Daniel also stated that Seawolf does not view its short position in CoreWeave as a bet on the overall health of the AI trade deteriorating.
He viewed this as a bet on the availability of funds and the cost of capital, noting that tech companies are competing with governments for financing amid tightening monetary conditions. In his view, this has created a market environment in which AI companies may be unable to finance themselves at affordable costs.
“If it can’t secure financing at a low cost, or if capital is truly unavailable, it will be very difficult to get this done—and that’s essentially my assessment of CoreWeave,” Daniel told Business Insider.