Magnetar Doesn’t Plan To Sell CoreWeave

Key Concepts

• Capital Expenditure (CapEx): Investments in physical assets like property, plant, and equipment.
• Cost of Capital: The rate of return a company must earn to satisfy its investors.
• Hyperscalers: Companies that provide large-scale cloud computing services (e.g., Microsoft, OpenAI).
• Infrastructure Layer: The foundational resources (data centers, GPUs, energy) required for AI and compute.
• Take-or-Pay Contracts: Agreements where a customer is obligated to pay regardless of whether they use the service.
• Sentiment and Timing: Market perception and the opportune moment for investment or exit.
• Asset-Based Investing: Focusing on the underlying assets and cash flows of a business.

Core's Public Offering and Magnetar's Perspective

Magnetar, an investment firm, views Core's public offering as a "beginning step" in a long-term process. Despite some liquidity events, Magnetar remains committed to Core, having invested in every round prior to the IPO. They consider Core the "gold standard" for infrastructure, particularly in the context of the ongoing digital transformation.

• Revenue Growth: Core's revenue has grown from $12 million four years ago to almost $2 billion this past year.
• Market Sentiment: Magnetar acknowledges concerns about a potential bubble in capacity, fueled by narratives about Microsoft moving away from data center leases.
• Demand: Magnetar believes that the actual business of data centers has "insatiable demand" that Core is struggling to keep up with.

Capital Expenditure and Compute

Magnetar closely monitors the CapEx of major companies to identify investment opportunities. They emphasize that compute is the "single biggest driver" of expense for these companies, consuming 30-70% of revenue.

• OpenAI Example: OpenAI is highlighted as a company with significant revenue traction, projecting $4 billion last year, $12 billion this year, and $27 billion next year.
• Compute as a Driver: The speaker emphasizes that the demand for compute is a fundamental driver of growth in the technology sector.

Magnetar's Investment Strategy

Magnetar focuses on lowering the cost of capital for capital-intensive companies. They are expanding into technology, recognizing that it is becoming increasingly capital-intensive.

• Capital Intensity: AI requires GPUs, energy, and real estate, all of which are capital-intensive.
• Value Proposition: Magnetar aims to be a value-added partner by providing capital and expertise in managing capital-intensive businesses.
• Capital Structure: Magnetar participates across the capital structure of companies, not just in equity.

OpenAI and the GPU Frenzy

Magnetar acknowledges the reported interest in investing in OpenAI, currently valued at $300 billion. While the investment is under consideration, no decision has been made.

• Sam Altman's Quote: Sam Altman's statement that "GPUs are melting" reflects the intense demand for compute resources for image generation.
• Focus on Infrastructure: Magnetar is primarily interested in the infrastructure layer (data centers, GPUs) rather than the application layer.

Core's Financial Structure and Debt

Magnetar addresses concerns about Core's debt load, arguing that it is a normal part of financing capital-intensive projects.

• Order-Based Financing: Core secures long-term contracts (e.g., with Microsoft and OpenAI) and uses these contracts to obtain financing from banks.
• Take-or-Pay Contracts: Microsoft's contracts with Core are "take-or-pay," meaning Microsoft is obligated to pay regardless of usage.
• Analogy to Car Lease: The speaker compares the contracts to a car lease, where the customer is obligated to pay even if the car depreciates.

Future Investment Focus

Magnetar's investment strategy is based on a "consistent, methodical process" of understanding assets, cash flows, and downside scenarios.

• Asset-Based Approach: They focus on analyzing the underlying assets and cash flows of a business.
• Risk Management: They prioritize understanding downside scenarios and ensuring companies have sufficient runway.
• Pipeline: Magnetar has a large pipeline of potential investments and is actively seeking new opportunities.

Synthesis/Conclusion

Magnetar's investment philosophy centers on identifying capital-intensive businesses with strong growth potential and helping them optimize their cost of capital. They see Core as a prime example of this strategy, highlighting its rapid revenue growth and its position as a leading provider of infrastructure for the AI revolution. Despite market concerns about a potential bubble, Magnetar remains bullish on the long-term demand for compute and the value of companies like Core that are enabling this growth. Their focus on asset-based investing and risk management guides their investment decisions, ensuring a disciplined approach to navigating the evolving technology landscape.