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.

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.)