Investors staring down a world of higher borrowing costs have kept piling into AI with the belief that companies behind the globe-spanning data-center build-out would be immune. But there are exceptions -- none more prominent than CoreWeave.
The Nvidia-backed compute provider has become a weather vane for one of the riskiest -- and most highly leveraged -- corners of the AI trade. This week, it endured a tornado.
When the sentiment was most dour Thursday -- with tremors extending across chip makers and other firms riding the AI boom -- Nvidia Chief Executive Jensen Huang spoke up. "CoreWeave's strength is improving every day," he said at a Bloomberg event. "I'm optimistic."
The statement cut against a steep selloff in CoreWeave bonds sparked by renewed fears of AI's profitability and hot inflation data suggesting higher rates are here to stay. The company's stock had also crashed, at one point Thursday falling 28% from the start of the week.
But Huang's statement helped spark a rebound that sent CoreWeave shares 6% higher Thursday. A rally in U.S. Treasurys added fuel for the move by driving down benchmark interest rates that had reached two-decade highs earlier this month.
The whirlwind episode showed how sensitive certain parts of the AI market are to changes in borrowing costs, even as cash-rich data-center hyperscalers such as Microsoft and Alphabet are so far insensitive.
Investors are viewing higher-for-longer rates as an effective tax on marginal borrowers, "and the marginal borrower in the AI trade is anyone who's not a high-quality hyperscaler," said Ali Bendarkawi, high yield portfolio manager at AllianceBernstein.
A onetime cryptocurrency-miner that went public in 2025, CoreWeave is a part of a small group of upstart companies that are both competing with and servicing hyperscalers by renting high-end chips to train and run AI models. Without the scale and profitability of tech giants, the newcomers have been heavily reliant on debt to expand.
Wall Street has hammered those stocks this week. Nebius Group retreated 15% and IREN tumbled 14%, largely mirroring CoreWeave's 15% decline.
The company's borrowing plans have made investors uneasy all year. CoreWeave carries a 'B,' or highly speculative, credit rating from S&P Global because it carries a high level of debt relative to earnings.
In July, CoreWeave's bankers revised terms of a syndicated loan sale to attract enough investors, ultimately pricing the debt at a yield above 10%.
"What the bond market is telling us is that they have a higher default risk," said David Busch, chief investment officer for Trajan Wealth. "It's not necessarily weakening demand for AI computing. But, in my mind, it's a growing concern that CoreWeave's enormous borrowing requirements could overwhelm its ability to generate cash and refinance debt at reasonable rates."
In all, CoreWeave is carrying at least $35 billion of debt on its balance sheet, according to FactSet. It is expected to burn through around $80 billion of cash over the next 31/2 years, said Jordan Chalfin, head of technology at the research firm CreditSights.
Rising rates tend to suck the froth out of markets by making risky assets look less attractive. Higher U.S. Treasury yields have hit the valuation multiples of tech companies and cast a pall over the IPO market, where two Australian data-center companies recently pumped the brakes on planned offerings. Broadcom's CEO added to the bad mood Monday by suggesting AI investors have "no clue what they are investing in."
The cost to protect CoreWeave's debt against default spiked to an all-time high this week, and some of its unsecured bonds dropped below 80 cents on the dollar Wednesday. A CoreWeave bond due in 2031 traded at a yield more than 10 percentage points higher than the comparable Treasury yield -- a symbolic threshold where the industry starts considering a bond "distressed."
Investors and analysts said that CoreWeave likely can't issue more unsecured bonds if yields on its existing bonds remain near recent levels. But they added the company still has other ways to fund itself, including secured loans backed by valuable contracts with customers such as Meta Platforms and different types of equity financing. Conventional unsecured bonds made up 22% of the company's total debt at the end of June, according to FactSet.
Some investors are optimistic. Bank of America on Thursday boosted its revenue-growth forecasts for CoreWeave, projecting higher prices and greater capacity amid surging demand for AI computing power. On Wednesday, retail investors bought a record amount of CoreWeave shares, according to Vanda Analytics.
Still, investors unloaded shares in chip makers and AI infrastructure firms Thursday, piling into safer assets such as gold and Treasurys. The yield on the 10-year U.S. Treasury note settled at 5.086%, according to Tradeweb, down from 5.189% Wednesday. The Dow Jones Industrial Average rose 1.1%, or 556 points, while the S&P 500 gained 0.3% and the Nasdaq composite inched 0.1% higher.
"The rise in Treasury yields has made financial conditions tighter already," said Peter Graf, chief investment officer at Amova Asset Management Americas. "They're going to do a great job slowing down parts of the economy, even if they don't have an impact on hyperscalers. We're starting to see a divergence."
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