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Wall Street is treating the AI data center operator CoreWeave like an underemployed boyfriend who just revealed he’s maxing out six different credit cards. As investors dumped the debt-saddled company’s bonds yesterday, the market for insuring against CoreWeave defaulting on its debt priced in a more than 60% chance it would be insolvent within five years.
The company’s stock recovered yesterday afternoon following a 15% drop on Wednesday. But its shares are down 13% this week amid a broader AI sell-off tied to fears that Silicon Valley’s debt-fueled splurge on AI infrastructure is unsustainable.
Core concern
Investors began to get nervous about CoreWeave’s plans to keep adding to its $50 billion debt pile to build AI data centers earlier this week:CoreWeave co-founder Brannin McBee told the Financial Times in an interview published Wednesday that the company is seeking to borrow from the “unlimited” pool of money held by insurers, after which a sell-off followed.
Then came the unexpectedly hot government inflation data for consumers and businesses, making it more likely the Fed will hike rates, which could raise CoreWeave’s loan payments.
Plus, there’s unease about CoreWeave being financed by its largest vendor, Nvidia, which supplies it with AI chips and owns 10% of its stock. Nvidia CEO Jensen Huang tried to assuage concerns yesterday, saying CoreWeave’s borrowing costs are declining. It seemed to have worked, boosting the stock to close almost 6% in the green yesterday.
Beyond CoreWeave: Concerns about unsustainable debt and signs that revenue growth at AI labs might be slowing battered other stocks dependent on the AI hardware binge, with chipmakers crashing particularly hard. The Philadelphia semiconductor index is down almost 6% this week.—SK
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