Shares and bonds of Nvidia-backed CoreWeave tumbled on Thursday as investors worried about its $50 billion debt. Axel Rudolph said, "The market is waking up to the fact that AI demand and a profitable business model are two very different things." Many now fear the AI boom relies on credit.
Synopsis
CoreWeave's financial distress is highlighted by its $50 billion debt and significant default risks, causing stock prices to drop. Investors express concerns about how the AI industry's expansion is financed, especially with rising interest rates. The company's efforts to secure an investment-grade rating indicate attempts to access more capital. Analysts project a bleak future for many neoclouds, with potential shutdowns by 2030.
Shares and bonds of Nvidia-backed CoreWeave tumbled again on Thursday despite CEO assurances about its strong deal backlog, laying bare a growing crisis of confidence in an AI build-out increasingly financed with borrowed money.
The loss-making AI cloud company, burdened with about $50 billion in debt, has become the poster child for mounting concerns that the data center boom is being fueled by credit, straining newer players and pressuring cash flows even at giants such as Alphabet and Meta Platforms.
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CoreWeave's slump, which has fueled a global rout in AI stocks, underscores investor doubts about whether future AI revenue can keep pace with the spending that has driven the industry's rapid expansion.
The stock was down 6% in premarket trading after falling more than 15% on Wednesday - making it one of the biggest decliners in the tech selloff.
"The market is waking up to the fact that AI demand and a profitable business model are two very different things," said Axel Rudolph, chief technical analyst at IG Group.
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"For now, it looks more like investors questioning how the build-out is being funded than a sudden collapse in appetite for AI computing. But if the cost of capital keeps rising, even strong demand may not be enough to protect the most heavily leveraged players."
The yield on CoreWeave's April-issued bonds due 2031 surged past 16%, above the level that typically signals distress, drawing a "yikes" from Elon Musk on social media.
The cost of insuring its debt against default has climbed to around 1,000 basis points, implying a nearly 63% chance of default within five years, up from about 30% a year ago. That is despite a deal under which major investor Nvidia will buy any unsold CoreWeave capacity through April 13, 2032.
CoreWeave, which went public in March 2025, leads a group of newer cloud providers known as neoclouds that rent out computing power from scarce and costly Nvidia processors to meet the tech industry's soaring demand, often borrowing heavily to buy the chips. It counts Microsoft and OpenAI among its major customers, according to media reports.
Critics say that leaves neoclouds exposed to any cooling in AI demand, while the chips lose value as newer generations arrive, forcing another round of heavy spending to replace them.
CoreWeave, which in August raised its annual capital spending forecast by $4 billion to as much as $39 billion, is expected to post revenue of nearly $13 billion this year and a loss of $2.13 billion, according to analysts' estimates.
Worries about the build-out, on which US tech giants are expected to spend more than $700 billion this year, have in recent days rippled through the stocks that have been the market's biggest winners since ChatGPT's November 2022 launch.
The Philadelphia Semiconductor Index, a closely watched gauge of semiconductor stocks, has erased over $1.6 trillion in market value in an 11.6% slide over the past six sessions. The tech-heavy Nasdaq has declined more than 3% in the period.
On Thursday, tech shares fell across Asia, Europe and the US, dragging broader markets lower on fears that high and rising interest rates could bring a reckoning for the sector.
CoreWeave's neocloud rivals such as Nebius, Applied Digital and Iren fell between 3.2% and 5%.
'UNLIMITED' POOLS OF CAPITAL
The CoreWeave selloff came as its co-founder Brannin McBee told the Financial Times the company was seeking an investment-grade rating that would open the door to "unlimited" capital.
On the same day, research firm Gartner said that about 80% of neoclouds could shut down by 2030, and that more than $3.5 trillion of AI infrastructure spending could face impairment if AI providers keep up their current pace of investment.
"In 2026, AI providers are expected to spend nearly $1 trillion on AI infrastructure, and are forecast to invest an additional $6 trillion between 2027 and 2030," said Will Sommer, analyst at Gartner.
"However, our research indicates enterprise and consumer AI revenue will be insufficient to support profitable returns on all planned AI capital expenditures during this period."
CoreWeave CEO Mike Intrator pushed back on the concerns in an internal memo on Wednesday seen by Reuters, telling employees the company's deal backlog more than covers its debt obligations and that markets can sometimes "misunderstand and act irrationally."
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