CoreWeave Sparks Warning Over AI Firms' Debt-Fueled Bets; Musk Says "Yikes"
CoreWeave shares plunge 15.6% on the New York Stock Exchange
AI-related stocks tumble 9% to 12% in tandem
Rate hike concerns spread amid high inflation
As concerns about an artificial intelligence (AI) bubble have resurfaced and the possibility of another U.S. interest rate hike has emerged, warning signs are flashing for U.S. technology companies that took on massive debt to expand their AI infrastructure.
Bloomberg reported on Oct. 14 (local time), citing TRACE, the U.S. bond-trading reporting system, that unsecured corporate bonds issued by AI cloud provider CoreWeave and due in 2032 were trading below 80 cents on the dollar. A bond price falling below 80% of its face value is generally seen as a sign of significant concern about the issuer's financial health. The bonds carried an annual coupon rate of 9.625% when they were issued in June, but their sharp price decline pushed their market yield above 15%. This means bond investors have begun demanding greater compensation.
CoreWeave uses graphics processing units (GPUs) from Nvidia to provide AI computing resources to companies including OpenAI and Microsoft. It has increased its borrowing as it pours vast sums into securing data centers and GPUs. According to the London Stock Exchange Group (LSEG), its debt, including bonds and loans, is estimated at $48 billion (about KRW 65 trillion).
Concerns have intensified as U.S. inflation exceeded expectations amid the renewed debate over an AI bubble. The U.S. Consumer Price Index (CPI) rose 3.7% in September from a year earlier, exceeding forecasts. This fueled speculation that the U.S. Federal Reserve could raise interest rates again. The yield on 30-year U.S. Treasury bonds surged to as high as 5.63% during the session.
Kim Forrest, chief investment officer (CIO) at Bokeh Capital Partners, told a foreign media outlet, "There has been a steady stream of information suggesting that major AI companies may not generate as much revenue or profit as originally expected." She added, "This is increasing investor anxiety about companies like CoreWeave."
Bad news from CoreWeave dampened investor sentiment toward AI infrastructure stocks more broadly. CoreWeave plunged 15.6% on the New York Stock Exchange on Oct. 15 from the previous trading day, falling as much as 17% during the session. IREN, Nebius, Applied Digital, Oracle and Dell Technologies also fell 9% to 12%.
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Shock was also palpable in Silicon Valley. Chamath Palihapitiya, a prominent venture capitalist and founder and chief executive officer (CEO) of investment firm Social Capital, shared the news on X, formerly Twitter. Tesla CEO Elon Musk, who saw the post, responded, "Yikes."
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