Resend - As concerns over AI debt intensify, CoreWeave stocks and bonds fall further

Correction: The publication date has been updated from October 14 to October 15.

Reuters, October 15 - Despite assurances from its CEO about a substantial backlog of orders, shares and bonds of artificial intelligence cloud service provider CoreWeave (CRWV.O) continued to plunge on Thursday. Against the backdrop of increasingly debt-driven AI infrastructure buildouts, this has become one of the most severe crises of investor confidence to date.

The company's stock fell another 6% in pre-market trading on Thursday after plummeting more than 15% on Wednesday, making it one of the largest losers amid a global sell-off in technology equities. Yields on the company’s bond issued in April and maturing in 2031 soared above 16%, breaching levels that usually signal financial distress, leading Elon Musk to exclaim "Oh my god" on social media.

Loss-making CoreWeave carries about $50 billion in debt and has become the focal point of growing industry concerns—questions are mounting over whether the tech sector can sustain the current data center boom. The craze has saddled not only emerging cloud service companies with heavy debt, but even giants like Alphabet, Google's parent company, have been faced with tightening cash flow.

The cost of insuring the Nvidia-backed company's debt against default has risen to around 1,000 basis points, implying a nearly 63% probability of default over the next five years—a sharp climb from around 30% just a year ago.

CoreWeave leads a group of so-called “new cloud” providers, who rent scarce and expensive Nvidia processors to provide compute power in response to surging tech industry demand, typically relying on borrowing to finance chip purchases.

Critics point out that this exposes such companies to the risk of a cooling in AI demand, while new generations of chips further devalue existing inventories, forcing firms to engage in further heavy spending to upgrade.

Analysts estimate that CoreWeave—which raised its annual capital expenditure forecast in August by $4 billion to between $35 billion and $39 billion—is expected to generate nearly $13 billion in revenue this year, while incurring a loss of $2.13 billion.

Concerns over this infrastructure buildout are mounting—U.S. tech giants are projected to spend more than $700 billion on it this year—and these worries have recently spread to stocks that have been the biggest beneficiaries since the launch of ChatGPT in November 2022.

The Philadelphia Semiconductor Index, a key barometer for high-profile chip stocks, has dropped 11.6% over the last six trading days, wiping out over $1.6 trillion in market capitalization. Over the same period, the Nasdaq Index, which has a high weighting in tech stocks, has fallen by more than 3%.

On Thursday, technology stocks across Asia, Europe, and the U.S. tumbled broadly, dragging major indices lower as the market worried that persistently high and rising interest rates may pose a daunting test for the sector.

Shares of CoreWeave’s “new cloud” competitors, including Nebius (NBIS.O), Applied Digital (APLD.O), and Iren (IREN.O), also fell between 3.2% and 5%.

“Infinite” pools of capital

As CoreWeave shares plunged, co-founder Brannin McBee told The Financial Times that the company is seeking an investment-grade rating, which would open the door to “infinite” pools of capital.

On the same day, research firm Gartner said that by 2030, about 80% of emerging cloud service providers may go out of business; should AI service providers maintain the current pace of investment, more than $3.5 trillion in AI infrastructure spending could be at risk of impairment.

"In 2026, AI vendors are expected to invest nearly $1 trillion in AI infrastructure, with an additional $6 trillion over the 2027–2030 period," said Gartner analyst Will Sommer.

"However, our research suggests that during this period, enterprise and consumer AI revenue will fall short of sustaining profitable returns on all planned AI capital spending."

CoreWeave CEO Mike Intrator disputed these concerns in an internal memo seen by Reuters on Wednesday, telling employees that the company’s backlog of orders is sufficient to cover its debt obligations, and that sometimes the market “misunderstands and reacts irrationally.”

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