Elon Musk vs. Jensen Huang: Who Is Right About CoreWeave?

Since October began, it has been a bad time to be an investor in neocloud stocks. Neocloud businesses, such as CoreWeave (NASDAQ: CRWV), are artificial intelligence (AI) cloud computing providers that have come under scrutiny lately. In particular, CoreWeave's debt yield has risen to about 15%, which now classifies its debt at distressed levels, which is worse than junk.

However, notable voices in the market say CoreWeave will be just fine, while others say to avoid these companies But who should investors trust? Let's take a look.

Image source: The Motley Fool.

Jensen Huang and Elon Musk are on different sides of the argument

On the bullish side is Nvidia Chief Executive Officer Jensen Huang. After shares of CoreWeave sold off, he noted that he's optimistic about the company's future and that its cost of capital was actually going down.

That means there's a disconnect between the financing terms CoreWeave is getting at the start of its loan versus how the secondary bond market views the likelihood of actually repaying its debt. Nvidia is a CoreWeave partner and investor, so it may have more information than the average person.

On the other side is Tesla and Space Exploration Technologies CEO, Elon Musk. Musk is on the bearish side. He commented that there are more than 200 neocloud providers and they will face "guppy-level death" during the next few years.

That's an aggressive statement, but the thinking behind it may be sound. Musk has directed the companies he leads not to do business with cloud companies that have no other income. Why? He's worried they won't be able to repay their debts, and then services could be shut off. That would be a major problem for his companies, but it makes sense as to why there could be issues.

CoreWeave and its peers don't have any other business besides AI data centers. So to grow, they borrow heavily.

Now, Musk isn't calling for every company in this sector to go to $0. Instead, he's saying that most will. Normally in situations like this, the strongest and largest company survives, and CoreWeave is certainly a contender for that title. This could put CoreWeave at an advantage, especially given how skeptical the market is about its prospects for success right now.

But who is right?

The market is siding with Musk

If you use stock price performance, the market is clearly siding with Musk. Since October began, CoreWeave's stock has fallen 27%. After its most recent sell-off, CoreWeave is now down 65% from its all-time high, set shortly after its springtime IPO in 2025.

That's a major sell-off, but there is one problem: The business itself isn't facing much scrutiny yet. As Huang alluded to, CoreWeave's cost of capital is going down. That means the companies that review CoreWeave's finances to determine the rate at which they will lend money are confident it will be just fine. CoreWeave will likely report Q3 results sometime in early November, and its solvency and future will be a huge topic of discussion on its earnings conference call.

So, what should investors do? I think exercising some patience until we get more clarity from the company on its conference call is the right move for investors. You don't have to be a hero in the stock market; staying patient and waiting for more information to come out in a situation like this is key to protecting your portfolio.

While I understand Musk's concern about neocloud providers facing a difficult future, I think the best will survive, and CoreWeave is one of those. As a result, it could be a smart time to buy in a few weeks, as the market is assuming a deeply bearish outlook.

Keithen Drury has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.