CoreWeave Shares Plunge as AI Debt Concerns Trigger Sell-off
CoreWeave shares and bonds plummeted Wednesday amid investor fears over high borrowing costs and a potential private credit bubble in AI infrastructure.
Shares of CoreWeave fell approximately 15% on Wednesday as yields on the company's debt climbed to 15%, signaling intense investor concern over its borrowing costs. The sell-off intensified after Social Capital founder Chamath Palihapitiya highlighted the soaring yields on social media, prompting a broader retreat from rate-sensitive AI stocks including Nebius, Oracle, and Dell. CoreWeave's 2032 bonds traded below 80 cents on the dollar, breaching the 1,000bps G-spread level typically associated with financial distress.
The volatility followed hot consumer price data that increased expectations for a Federal Reserve interest rate hike. Analysts, including Gil Luria of DA Davidson, warned that the neocloud provider's high leverage could lead to value destruction if it continues borrowing at high rates while achieving lower returns. S&P Global Market Intelligence reported that the cost of insuring CoreWeave's debt against default surged to record highs, with some credit default swaps pricing in a more than 50% chance of default within five years.
CoreWeave CEO Mike Intrator issued a memo to employees dismissing the market reaction as irrational. He attributed the volatility to a negative narrative surrounding the failed IPOs of rivals and asserted that the company's second-quarter revenue backlog of $104.2 billion is sufficient to support all debt obligations. The company further stated it remains confident in its funding and business model.
