CoreWeave stock, bonds set for weekly plunge as rate-hike fears hit AI bet

Oct 16 : CoreWeave's shares and bonds were set for steep weekly losses on Friday, underscoring investor worries over the cloud-computing company's $50 billion debt load that has rippled across the AI industry.

The Nvidia-backed company came into focus this week after the latest inflation data boosted bets on interest-rate hikes, raising the chances of higher payout on borrowings by data center and AI infrastructure firms with huge debt.

CoreWeave shares fell more than 5 per cent in premarket trading after tumbling over 15 per cent this week, their worst week in nearly two months.

"A hot inflation print triggered a sharp selloff in CoreWeave because its business model is a highly indebted play on future data center demand," BCA Research analysts said.

"Although the rest of the tech complex is also sensitive to the pace and magnitude of AI adoption and use, it is, on average, considerably less sensitive to interest rates," they said.

The selloff is a stark reminder that AI companies' reliance on debt is becoming a risk for investors and punctures the notion that companies at the heart of the AI boom are immune to macroeconomic headwinds.

CoreWeave's stock has already lost about a fifth of its value, or nearly 9.6 billion, so far this month.

DEBT MARKET JITTERS

The yield on CoreWeave's October 2031 maturity dollar bond briefly surged past 16 per cent on Thursday. It is set to decline for a fifth straight week, down about 3 cents on the dollar this week.

The cost of insuring against CoreWeave's debt has surged past 1,000 basis points to record highs this week, according to data from S&P Global Market Intelligence.

Investor worries over CoreWeave's massive debt load and distressed bond yields had a contagion affect that impacted rival Nebius Group, whose shares were set for their steepest weekly fall in two months.

Still, several analysts were not ready to throw in the towel. Evercore analysts maintained their outperform rating on CoreWeave stock.

"The markets appear to be extrapolating a higher secondary-market bond yield as evidence the business model has stopped working, which we don't think is the case," they wrote in a note.

Others argued the rout in CoreWeave should not be seen as a sign that the AI rally is coming to an end. "You cannot take CoreWeave as the poster child for AI," said Tommaso Leodari, chief investment officer at Dubai-based hedge fund Index & Cie.