Coreweave for instance, now has its CDS trade around 600bp, which is a 1/3 rise in 2 months, which implies that the probability of a default in 5 years is 40% at a 40 cent recovery rate.
That makes Coreweave's credit rating the equivalent of CCC-, which aint good.
At that moment what choice would the government have but to conduct a rescue that at least keeps the lights on, and probably more? What’s the alternative? Extensive data losses, business interruptions— if just a couple of those key companies spontaneously stopped operating, chaos.
There would not really be a huge rush if they are cashflow positive, they can take their time.
Source, we basically explored this at my previous job, and that was 7 years back.
Of course, we can always find ways to use compute in non-productive ways—mining crypto, for instance.
Additionally, Cohere is no less “kids” than Anthropic or OpenAI. Aidan was literally one of the co-authors of “Attention is all you need”.
https://www. theinformation.com/articles/openai-challenger- cohere-fell-85-short-early-revenue- forecast
>While an intern at Google Brain, Aidan Gomez co-authored the paper "Attention Is All You Need" with other researchers.
>The authors of the paper are: Ashish Vaswani, Noam Shazeer, Niki Parmar, Jakob Uszkoreit, Llion Jones, Aidan Gomez, Łukasz Kaiser, and Illia Polosukhin. All eight authors were "equal contributors" to the paper; the listed order was randomized.
Intern or not, it still sounds like he contributed substantially.
Cohere raised from Nvidia. Cohere spends on Coreweave. Coreweave raised from Nvidia and buys Nvidia chips.
This is why they buy from Coreweave.
You get GPU rentals. Not the actual billions raised they claim. So it's just creative accounting to count the same money 2-4x.
I have a lot of opinions on this but curious about yours :)
I don't have a good idea of what happened inside or what they could have done differently, but I do remember them going from a world-leading LLM AI lab to selling embeddings to enterprise.
That said, Cohere only got a couple hundred million from CA and the DC is being built "domestic" in CA.
That's not enough?
Sounds like you're knowledgeable about the skills gap of do-ers in CA govt, but I'd be concerned about wasting even more time/$ through incompetence. And a politician would be staked on its outcome. That's too much political risk.
Separately, investors can buy a derivative product that is a bet that Coreweave won’t be able to pay this money back. This is a called a “credit default swap.” If Coreweave starts missing payments or can’t pay back the loan this instrument pays out.
The price of the instrument is linked to the likelihood that Coreweave won’t be able to repay the money. Given growing questions around their financial business model the price of these derivatives has been rocketing up over the last few months. In plain speak this means the market increasingly thinks Coreweave won’t be able to repay these loans.
Thats mirroring broader Wall Street sentiment these last few months that the math isn’t adding up on AI and all the spend committed isn’t mapping out against money likely to be available to pay for all that. Investors are increasingly making plays for the AI bubble popping and the price of these credit default swaps shooting up is one metric indicative of that downturn positioning.
The data on this is available in various financial data platforms and has been written about by financial news outlets.
The price of a credit default swap is essentially the probability that the borrower defaults on its bonds (misses an interest payment) which would mean the person who sold the credit default swap would owe money to the holder of the credit default swap.
The price of a credit default swap increasing means the market is pricing in a higher probability of Coreweave defaulting on a bond. Oracle credit default swaps have also increased in price lately.
THe annual premium is approx the premium paid to cover the expected loss, so:
spread = (prob_of_default_annual * (1-recovery_rate)
We have a spread of 0.06 and a recovery_rate of 0.4
so the annual probability of default is about 0.10
Now converting that to 5 year we have
prob_of_default5y = 1 - (1-pd_annual)^5
Which gives about 40%.
And if you look at the cds spreads across various bond ratings you'll see they look like
Rating || 5y CDS Spread || 5 yr default prob
BBB 60-120bps 1-3%
BB 150-250bps 5-15%
B 400-700bps 25-34%
CCC 700-1200bps 35-60%