CoreWeave explores Wall Street playbook to hedge against volatile memory chip prices

AI cloud company CoreWeave explores Wall Street playbook to hedge memory-chip price risk

SAN FRANCISCO, July 14 (Reuters) - AI cloud computing company CoreWeave (CRWV.O), opens new tab is exploring the use of financial derivatives as a potential hedge against a future drop in memory and storage chip prices, according to a person familiar with the matter. The unusual move underscores how deeply the AI boom has entangled cloud providers with the volatile chip market. To lock in ⁠supply amid soaring demand, thanks to a surge in AI infrastructure construction, cloud operators including CoreWeave have signed long-term agreements with memory and storage makers such as Micron (MU.O), opens new tab and SanDisk (SNDK.O), opens new tab. Many of these deals guarantee suppliers a price floor for dynamic random access memory (DRAM) and storage chips. But the arrangement cuts both ways: it protects chipmakers from a downturn, but leaves cloud companies like CoreWeave exposed if prices fall and they are stuck paying well above the going rate. As a result, CoreWeave executives have held discussions about ways to hedge against a slide in memory chip stocks that would occur ⁠if prices drop in the future, the source said. The discussions are in their early stages and the company has not yet executed any hedges, the source said. Among the possibilities discussed are put options -- contracts that give the owner the right, but not the obligation, to sell an underlying asset at a predetermined ⁠price in the future -- and potentially other derivative instruments. Memory and flash storage prices have spiked in recent months. Historically, memory has been a cyclical industry and elevated prices often fall after new manufacturing capacity becomes ⁠active. Memory companies such as SK Hynix and Micron have indicated they expect fully ramped up new manufacturing capacity in early 2028. Other industries such as energy and airlines have used hedging strategies to ⁠help ensure rising or falling oil prices do not have an outsized impact on the business. U.S. airlines have been burned in the past, opens new tab after such hedging efforts. Many companies also hedge against currency risks. Reporting by Max A. Cherney in San Francisco; Editing by Lincoln Feast. Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * World * Capital Markets Max A. Cherney Thomson Reuters Max A. Cherney is a correspondent for Reuters based in San Francisco, where he reports on the semiconductor industry and artificial intelligence. He joined Reuters in 2023 and has previously worked for Barron's magazine and its sister publication, MarketWatch. Cherney graduated from Trent University with a degree in history.

CoreWeave looks to Wall Street to hedge memory chips, an asset with no market

The AI cloud company locked in DRAM supply with price floors. It is now exploring put options, in a market that has almost nothing to trade. Memory chips have roughly doubled in price this year, a squeeze that has emptied Apple's shelves and rewritten data centre budgets. CoreWeave is now working out what to do if they get cheaper. The AI cloud company is exploring financial derivatives as a hedge against a future drop in memory and storage chip prices, Reuters reported on July 14, citing a person familiar with the matter. The talks are early, no hedges have been executed, and no CoreWeave executive has discussed them publicly. The account rests on a single unnamed source. The exposure is a by-product of guarding against the opposite problem. Cloud operators including CoreWeave have locked in supply through long-term agreements with memory and storage makers such as Micron and SanDisk, many of which guarantee the supplier a price floor on DRAM and storage chips. That shields the chipmaker from a downturn and leaves the buyer paying well above the going rate if prices fall. Memory has always been cyclical, and elevated prices have a habit of collapsing once new capacity switches on. The numbers behind the anxiety belong to TrendForce. Conventional DRAM contract prices rose 93% to 98% quarter on quarter in the first quarter, lifting industry revenue 81% to $97 billion, and were forecast to climb another 58% to 63% in the second. The climb is decelerating, and the long-term agreements are the reason. TrendForce expects server DRAM contract prices to rise 13% to 18% in the third quarter, with most of the remaining increase landing on buyers who never signed one. Those agreements are collars in all but name: a floor for the seller, a ceiling for the buyer. SK hynix has reportedly stripped the cap out of its contracts, the only major supplier said to have done so, while terms stretch from one year to three or five. CoreWeave's stake in the outcome is a 2026 capital expenditure budget of $31bn to $35bn, whose low end it raised in May because of component prices, finance chief Nitin Agrawal told analysts. The buildout is financed largely with debt, though borrowing costs have fallen from 10% to 7% in six months. "It's an issue, it's a problem, but we have an incredible capacity to navigate the supply chain," chief executive Mike Intrator said on the same call. Demand is not the worry. CoreWeave closed the quarter with a $99.4bn backlog and has since added customers including Jane Street, on a $6bn cloud deal. What CoreWeave would actually trade is the harder question. Exchanges have spent the year building a market for compute, but the CME Group and Intercontinental Exchange contracts track GPU rental rates rather than memory, and the first futures to reference DRAM, announced by Architect Financial Technologies and index provider Ornn in January, are still waiting on regulatory approval. Which leaves equities. The instruments under discussion reportedly include put options, and Reuters described the risk being hedged as a slide in memory chip stocks, wording that suggests the trade is a proxy rather than a bet on the chips themselves. The liquid way to be short DRAM today is to be short the people who make it. There is a ready-made vehicle for that. The Roundhill Memory ETF, ticker DRAM, launched on April 2 and pulled in $6.5bn within 27 trading days, with roughly three-quarters of the fund in SK hynix, Samsung, and Micron. Micron and SanDisk, the two suppliers named in CoreWeave's long-term deals, are both holdings. Hedging an input is an old idea, and not a reliably good one. Airlines have been burned by fuel hedges before, a comparison the Reuters account makes itself. The cycle CoreWeave is bracing for has a date attached. SK hynix and Micron have both signalled that their new manufacturing capacity will be fully ramped in early 2028, which is when the price of a chip CoreWeave has already agreed to buy stops being a hypothetical.

AI cloud company CoreWeave explores Wall Street playbook to hedge memory-chip price risk

SAN FRANCISCO, July 14 (Reuters) - AI cloud computing company CoreWeave is exploring the use of financial derivatives as a potential hedge against a future drop in memory and storage chip prices, according to a person familiar with the matter. The unusual move underscores how deeply the AI boom has entangled cloud providers with the volatile chip market. To lock in supply amid soaring demand, thanks to a surge in AI infrastructure construction, cloud operators including CoreWeave have signed long-term agreements with memory and storage makers such as Micron and SanDisk. Many of these deals guarantee suppliers a price floor for dynamic random access memory (DRAM) and storage chips. But the arrangement cuts both ways: it protects chipmakers from a downturn, but leaves cloud companies like CoreWeave exposed if prices fall and they are stuck paying well above the going rate. As a result, CoreWeave executives have held discussions about ways to hedge against a slide in memory chip stocks that would occur if prices drop in the future, the source said. The discussions are in their early stages and the company has not yet executed any hedges, the source said. Among the possibilities discussed are put options -- contracts that give the owner the right, but not the obligation, to sell an underlying asset at a predetermined price in the future -- and potentially other derivative instruments. Memory and flash storage prices have spiked in recent months. Historically, memory has been a cyclical industry and elevated prices often fall after new manufacturing capacity becomes active. Memory companies such as SK Hynix and Micron have indicated they expect fully ramped up new manufacturing capacity in early 2028. Other industries such as energy and airlines have used hedging strategies to help ensure rising or falling oil prices do not have an outsized impact on the business. U.S. airlines have been burned in the past after such hedging efforts. Many companies also hedge against currency risks. (Reporting by Max A. Cherney in San Francisco; Editing by Lincoln Feast.)