CoreWeave shares plunge 15%, corporate bonds sink amid AI debt fears

Shares and corporate bonds of US AI cloud company CoreWeave tumbled in tandem Wednesday, fanning concerns about the debt risks tied to AI infrastructure investment. A hotter-than-expected US inflation reading raised the prospect of further Federal Reserve rate hikes, and analysts said the financial strain on AI companies that have relied on heavy borrowing to expand their data centers weighed on investor sentiment.

CoreWeave's share price closed down 15.5 percent at $65.80 on the New York Stock Exchange on Wednesday (local time), after falling as much as 17 percent during trading — its steepest intraday drop since February.

The selloff extended to the corporate bond market. The yield on CoreWeave's 2032 bonds, which carry a coupon rate of 9.625 percent, soared to 14.8 percent.

According to Bloomberg, the bonds, issued at par just four months ago, fell below 78 cents on the dollar. Corporate bonds trading below 80 cents on the dollar are generally considered distressed, a level that signals heightened financial risk.

The implied five-year default probability reflected in credit default swap prices also exceeded 50 percent, underscoring growing market anxiety over CoreWeave's ability to service its debt.

The bond selloff gained momentum on Wednesday. Chamath Palihapitiya, CEO of Social Capital, posted a chart on X on Tuesday showing CoreWeave's bond yield hitting 15 percent during trading, asking whether AI infrastructure buildout was creating a private credit bubble. Tesla CEO Elon Musk replied to the post with "Yikes."

Branin McVey, CoreWeave's co-founder overseeing financing, told the Financial Times the company planned to secure additional investment-grade ratings on chip-backed loans to attract insurance capital, saying "the money in the insurance tranche is infinite."

Gil Luria, an analyst at D.A. Davidson, pushed back, saying CoreWeave — which borrows to buy Nvidia chips and build data centers — represents the "subprime layer" of AI investment capital structures, carrying the greatest risk of loss. "Borrowing at 9 percent to earn 5 percent destroys value," he said.

Adding fuel to the selloff, September consumer price index data released that day showed inflation rose 3.7 percent year-on-year, topping the market consensus of 3.6 percent and heightening expectations of additional Federal Reserve rate hikes.

AI-related stocks fell broadly as well.

Oracle, which has expanded its data centers through heavy borrowing, dropped 8.8 percent, while Nebius, a neo-cloud company similar to CoreWeave, fell 10.1 percent.

Nvidia fell 3.2 percent, Micron dropped 4.1 percent and Broadcom declined 3.1 percent. The Nasdaq fell 1.9 percent.

CoreWeave CEO Michael Intrator rebuffed the concerns in a memo to employees, saying "there are times when the market misunderstands and acts irrationally," and that the company's order backlog "more than covers all of its obligations."