CoreWeave, a major player in AI infrastructure, is experiencing severe credit stress, with its credit default swaps reaching distressed levels and bond yields soaring above 15%. This signals growing investor concern over the company’s substantial $51 billion debt pile, used to finance its AI build-out, and reflects a broader unease spreading across the AI sector regarding overspending and debt. Despite CEO Mike Intrator’s assurance of a robust $100 billion backlog, market analysts warn that such credit concerns could trigger a “self-fulfilling prophecy,” impacting other AI-related companies like Oracle.
CoreWeave, a prominent player in the 'neocloud' space, faced intensifying credit stress on Thursday, reflecting a growing unease among investors regarding significant debt in the artificial intelligence sector. This deepening concern saw the company's credit default swaps (CDS) soar to levels widely considered distressed, and yields on its 2031 bonds climb above 15%.
The company has amassed over $51 billion in debt and financial obligations to fund its ambitious AI infrastructure expansion. However, this aggressive build-out is now encountering resistance from both stock and bond investors, who are increasingly worried about potential AI overspending and the sustainability of current debt levels.
CoreWeave's 9.75% bond due in 2031 saw its yield to maturity reach an alarming 15.78% (bond yields move inversely to prices). Furthermore, the spread on its five-year credit default swaps, which act as insurance against default, at one point surged past 1,140 basis points. It last settled at nearly 1,038 basis points, marking a 16% jump week-over-week and a staggering 164% increase compared to a year ago. These widening spreads signal that investors perceive CoreWeave's debt as significantly riskier.
The contagion isn't limited to debt markets; credit concerns are also impacting AI equities. CoreWeave's stock experienced a dip during Thursday's trading before staging a recovery to close 5.94% higher, following a steep 15.5% nosedive the previous day. Other 'neocloud' stocks, such as Nebius and Iren, also felt pressure, though they ultimately closed with smaller gains or declines.
Broader anxieties about AI overspending are spreading throughout the tech ecosystem. Shares of major chipmakers like Micron Technology and Advanced Micro Devices (AMD) saw sell-offs, echoing similar declines in South Korean chip stocks. Micron closed up 1.87%, while AMD slipped 1.5%.
While investor concern over AI-related debt has been steadily mounting, a sudden skittishness has emerged regarding the underlying financial health of companies heavily borrowing to acquire chips, construct data centers, and offer computing power. CoreWeave's credit default swaps vividly illustrate this heightened stress.
Gavan Nolan, Executive Director of Fixed Income Pricing at S&P Global Market Intelligence, notes that a spread of 1,000 basis points or higher is generally indicative of credit distress. As the Evercore ISI trading desk put it, the market is "basically saying 'no mas' to AI debt without operating cash flow support." Nolan adds that while demand for CoreWeave's services from major hyperscalers is not in question, the crucial factor is whether the necessary cash flows will materialize to justify its substantial capital expenditures, given its currently negative free cash flow.
'Self-fulfilling prophecy'
CoreWeave CEO Mike Intrator, in a memo obtained by CNBC, dismissed the recent market movements on Wednesday, stating, "When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally." He expressed confidence in the company's backlog, which he asserts "more than supports all of our debt obligations."
Deutsche Bank, in a note on Thursday, reiterated its 'buy' rating on CoreWeave stock, calling the current market dislocation a buying opportunity. The firm highlighted CoreWeave's backlog of over $100 billion, with approximately two-thirds of it secured by investment-grade counterparts including Microsoft, Meta, IBM, and Caterpillar.
However, Jim Reid, Global Head of Macro and Thematic Research at Deutsche Bank, warned that such credit concerns could evolve into a "self-fulfilling prophecy," potentially triggering wider issues across other AI-related companies.
Indeed, these domino effects may already be in motion. Oracle's five-year CDS spread also spiked this week, reaching 282 basis points—a roughly 10% increase in just one week. Reid cautioned that a downgrade from Oracle's BBB rating could potentially compel investment-grade-only investors into forced sales, amplifying market instability.
