Core Scientific deal reveals cracks in CoreWeave's bull case

Shares of Core Scientific plunged after AI cloud provider CoreWeave announced plans to acquire the data center firm in an all-stock deal, a reaction that defies the typical market response to acquisition news.

Instead of rallying to reflect the purchase price, Core Scientific stock dropped 25%, closing at $13.43 on Wednesday—far below the deal’s implied value.

The trading pattern indicates that investors anticipate a significant drop in CoreWeave's stock price before its acquisition of Core Scientific is finalized.

The acquisition is expected to close in the fourth quarter.

Deal value hinges on volatile CoreWeave stock

The agreement, announced Monday, would see Core Scientific shareholders receive 0.1235 shares of CoreWeave for every Core Scientific share.

At CoreWeave’s pre-deal trading price of $165.20, that implied a value of $20.40 per Core Scientific share.

However, CoreWeave shares have already fallen to $153.05, dragging the implied deal value down to $18.90.

Even that figure may be overly optimistic. Based on options market pricing, CoreWeave stock could trade closer to $115 by November.

At that price, the value of the deal to Core Scientific shareholders would be just $14.20—a level far closer to where shares are currently trading.

This uncertainty stems from a key feature of the deal: it lacks the usual protections often included in all-stock mergers.

There's no price collar or floor to safeguard Core Scientific shareholders if CoreWeave’s stock declines before the deal closes.

That omission has left investors wary and the stock vulnerable.

Arbitrage traders stay cautious

Normally, such a large discount between the current trading price and the implied deal value would attract merger arbitrage traders hoping to profit from the spread.

But the lack of price protection and volatility in CoreWeave’s stock complicates such bets.

"Using the options market, you can currently buy or sell shares of CoreWeave in November for $115," says Kevin Mak, a trader and director of the Real-Time Analysis and Investment Lab at Stanford Graduate School of Business, in a Barron's report.

"This is not a judgment; this is what the market is pricing it at."

Adding to the pressure, CoreWeave is a richly valued stock.

Since its IPO, the company has surged 283% on the back of triple-digit revenue growth and limited share liquidity.

However, it trades at 8.7 times projected 12-month sales—nearly double the Nasdaq Composite average of 4.4.

The average Wall Street price target for CoreWeave is $94.56, suggesting further downside from current levels.

Lockup expiry could trigger stock pressure

Investor concerns may intensify in August, when CoreWeave’s IPO lockup period expires.

Early backers—including Magnetar Financial, which owns more than 30% of the company—will be free to unload their shares.

Magnetar’s stake, worth around $14.7 billion, accounts for three-quarters of its portfolio.

A move to reduce exposure could flood the market with stock, driving prices lower.

Despite CoreWeave’s strategic rationale for buying Core Scientific—mainly to gain control over the data center capacity it already leases—investors are signaling doubts over the sustainability of its valuation and the fairness of the deal terms.