To The Moon

According to Woofun AI, Elon Musk sent a signal to the market on Tuesday evening that global artificial intelligence computing power has been exhausted, a claim that directly gave the CoreWeave bond market a brief respite on Wednesday, though the strong performance of SpaceX did not eliminate the deep financing difficulties facing CoreWeave.

Data compiled by Woofun AI shows that while the CoreWeave bond market is showing signs of stabilization, risk premiums remain elevated. The 9.625% coupon bond maturing in July 2032 was priced at 80.5 cents on the dollar on Wednesday, essentially flat with Tuesday's close, with a yield to maturity of 14.68%. Compared with the severe turbulence of recent weeks, this performance is viewed as positive, but investors' pricing of risk has not loosened. By comparison, the 5-year U.S. Treasury yield stood at 4.92% on Wednesday and the 7-year at 5.01%. CoreWeave, as a lessor of scarce technology resources, must pay nearly triple those rates, amounting to an additional interest burden of nearly 10 percentage points (approximately 976 basis points) per year. Bonds of other maturities show similar characteristics: the 9% coupon bond maturing in February 2031 trades at about 83 cents on the dollar with a yield of 14.44%, while the 9.75% coupon bond maturing in October 2031 yields approximately 15%. Credit default swap (CDS) data confirms this trend, with CoreWeave's annual CDS cost at approximately 1,100 basis points as of October 19, a level typically associated with struggling borrowers. S&P Global rates CoreWeave at B, and Moody's rates it at B1, both in the highly speculative category.

Space Exploration Technologies reported third-quarter results on Tuesday, with Elon Musk emphasizing on the conference call that demand growth far outstrips supply, saying large tech companies and dozens of smaller firms are constantly pressuring for more computing capacity and that business could multiply several times over if all requests were fulfilled, meaning there is no shortage of demand. The news drove SPCX shares up 9.1% to $161.30 on Wednesday, touching an intraday high of $166.18. CoreWeave shares also rose in early trading, gaining 2.35% pre-market and 3.9% after the open to $64.58, but the rally lasted less than an hour before the stock fell back to a low of $59.31, eventually closing down 1.13% at $61.43.

CoreWeave's business model relies on borrowed funds to purchase chips and build data centers, which are then leased to AI developers under multi-year contracts to repay debt. Elon Musk's remarks benefit the second step, but bondholders remain stuck with the high costs of the first step. With bond yields reaching 15%, new data centers must work much harder to cover interest. Goldman Sachs estimated this week that CoreWeave's average borrowing cost could rise by 100 to 200 basis points as long as returns on new projects remain attractive. Notably, Goldman Sachs, which issued this optimistic assessment, counts SpaceX as a client that generated $1.6 billion in revenue from its cloud services business for AI infrastructure in the second quarter, selling the same products as CoreWeave.

Institutional rating adjustments and market divergence further highlight CoreWeave's valuation pressure. Goldman Sachs upgraded CoreWeave from "Neutral" to "Buy" on Monday but lowered its target price from $139 to $106. HSBC maintained its "Underweight" rating with a target price of $39. Piper Sandler cut its target price from $153 to $124 on Wednesday. Analyst James Fish noted that AI cloud service companies can support growth through customer prepayments, chip-collateralized loans, and cash flow from signed contracts, but warned that pressure will persist unless industry free cash flow improves and borrowing costs decline. The bond market has already made its judgment: despite CoreWeave's resource advantages, investors are not convinced it can sustain the high operating costs.