CoreWeave Credit Stress Deepens AI Selloff as Nvidia CEO Defends Finances

According to CNBC, CoreWeave has taken on more than $51 billion of debt and obligations to finance its AI infrastructure buildout. Yields on its debt have climbed, with the yield to maturity on its 9.75% bond due in 2031 reaching 15.78%. The spread on its five-year credit default swaps, which are insurance against default, at one point soared above 1,140 basis points; it last stood at 1,088 basis points, a 33% week-over-week jump and 177% higher than a year earlier. CoreWeave's stock fell again Thursday after a 15.5% nosedive on Wednesday. Other neocloud stocks came under similar pressure: Nebius was down 5% and Iren sank 8% in Thursday trading. Micron Technology and Advanced Micro Devices shed 4% and 6%, respectively, after a big sell-off in South Korean chip stocks.

The market is 'basically saying no mas to AI debt without operating cash flow support,' the Evercore ISI trading desk said, according to CNBC. Gavan Nolan, executive director of fixed income pricing at S&P Global Market Intelligence, said a spread level of 1,000 basis points or above is generally a sign of credit distress. No one is questioning whether demand for CoreWeave's services is real, since the company has contracts with all the big hyperscalers, Nolan said. The question is whether the cash flows will ultimately arrive. 'It's obviously heavily negative free cash flow at the moment, and it needs that cash flow to arrive really to justify all the capex that it's spending,' Nolan said.

CoreWeave CEO Mike Intrator dismissed the market moves on Wednesday, according to a memo obtained by CNBC. 'When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally,' he wrote. 'We are confident in our backlog which more than supports all of our debt obligations.' The backlog is over $100 billion, with around two-thirds of it with investment-grade counterparts including Microsoft, Meta, IBM and Caterpillar, Deutsche Bank said in a note Thursday. The firm reiterated its buy rating on the stock Wednesday and called the dislocation a buying opportunity.

Bloomberg's Ed Ludlow said equity market investors are looking at CoreWeave's ballooning debt and the cost of maintaining that debt as it reassesses its credit risk. CoreWeave, a 'neocloud' company that only runs AI data centers, is supplied solely by chip giant Nvidia and runs AI processing for OpenAI and Microsoft. Both CoreWeave's CEO and Nvidia's Jensen Huang have downplayed concerns around CoreWeave's financial structure, bolstering the company's stock. A CNBC article said Huang came out Thursday and said CoreWeave is fine, doesn't need help, and that the company's cost of capital is actually decreasing because Nvidia chips more than hold their value. That statement turned the entire tech market around, at least for Thursday, according to the CNBC article.

Credit concerns are spreading into other AI-related names. Jim Reid, global head of macro and thematic research, said the kind of concern can prove to be a self-fulfilling prophecy and risks triggering broader issues in other AI-related names. Oracle's five-year CDS spread also spiked this week; it was last at 288 basis points, a more than 12% increase in one week. 'A downgrade from its BBB rating would risk pressuring IG-only investors into forced sales,' Reid said.

Inflation fears returned to focus as markets awaited Fed Chair Kevin Warsh, according to Bloomberg. A CNBC article said Warsh aims to bring inflation down to the central bank's 2% target after years above that level, but would do so by raising interest rates. To get inflation to 2%, Warsh might have to take short-term rates to 5.5% or even 6%, the article said. The current range for short-term policy rates is 3.75% to 4% after the Fed hiked last month for the first time in three years. The market sees at least one more rate increase by year-end, and the longer end, which the Fed does not control, could go to 5.5% to 7% or 8%, according to the article. It cited a hot consumer price index on Wednesday, hot producer price index and retail sales numbers on Thursday, and $100-per-barrel oil.

The pressure also touched Anthropic, the AI company. Bloomberg said Anthropic's surging revenue collides with new calls to delay its IPO. The CNBC article described Anthropic's earnings announcement as falling short of expectations, even while noting that a $100 billion annualized run-rate is hardly disappointing and that profitability might be possible.